The growth rate of inflation in the 1st quarter of 2014 amounted to 6.6% and made plans for reaching the official targets for annual inflation highly unlikely. Despite this, a gradual reduction in refinancing rates with a second round of cuts has been preserved. It was also accompanied fixing the maximum rate of ruble loans at a rate of 39.4% for companies.

This April the National Bank decided to its reduce refinancing rate, which has remained unchanged for the past 10-months. This measure is, to some degree, a helping hand for the real sector that is facing significant difficulties at present. However, despite their best intentions, this move may actually lead to serious imbalances and create additional pressure on the national currency.

Economic performance during first two months of 2014 has been rather disappointing. First, almost all industries reduced their output which led to a decline in GDP by 1.6% year-on-year in January-February.  Second, Belarus has faced new challenges on foreign markets, which are a consequence of capital outflows and weakening growth in Russia.

Belarus is often treated as ‘terra incognita’ even among its neighbors. Indeed, the development path of the country is severely distinct from other CEE countries. In terms of long-term growth, majority of transition countries during the last decade fell back upon the growth of TFP (total factor productivity, i.e. technology and efficiency) being accompanied with reasonable growth of capital. Belarus, in turn, secured its growth almost entirely due to accumulation of capital, while productivity gains were extremely poor, especially in tradable sector.

According to official forecasts, an improved climate for foreign trade and accelerated economic growth await Belarus in 2014. The growth of the country's negative trade balance in 2013 created additional pressure on the foreign exchange market and the dynamics of its foreign reserves.