BELARUS NEWS AND ANALYSIS

DATE:

15/08/2007

Belarus Ctrl Bank To Cut Link To Russian Ruble In '08 -Report

MOSCOW (Dow Jones)--The Belarusian Central Bank will stop tying the Belarusian ruble to the Russian one from next year, the news agency Interfax reported Wednesday, citing a document on the bank's monetary policy guidelines for 2008.

The move appears to draw a line under ill-fated plans for a monetary and economic union between the two countries, which had effectively died a death over the last three years as the countries' economic fortunes and political agendas diverged increasingly sharply.

Relations have soured increasingly quickly as Russia has moved to phase out subsidized energy deliveries to its western neighbor.

Only two weeks ago, OAO Gazprom (GAZP.RS) came within days of cutting supplies of gas to the country in retaliation for partial non-payment.

Katya Malofeeva, senior economist at Renaissance Capital, said the decision was economically justified, irrespective of the political factors underlying the decision.

"Russia and Belarus have very different balances of payments and therefore different sets of risks," she said.

She noted that Belarus' current account deficit widened to around 3% of gross domestic product last year, and that higher prices for Russian oil and gas will put further pressure on it this year.

The National Bank of Belarus also said it would downgrade the importance of M1 money supply as an intermediate indicator, saying that the link between it and inflation had become less predictable.

Instead, the National Bank of Belarus said it would aim to keep its currency within a band of 2.5% above or below a specific rate to the dollar with a view to restraining inflation, which it expects to be no more than 8% this year and 6%-8% next year.

-By Geoffrey T. Smith, Dow Jones Newswires; (+7 495) 974 8055; geoffrey.smith@dowjones.com

Source:

http://www.fxstreet.com/news/forex-news/article.aspx?StoryId=35b739d5-1b69-4ca4-a1fe-6ea0d92bff0c