Everybody has been following events in the Russian markets this week, but fewer have kept an eye on Russia’s smaller neighbour Belarus, but the small country is seeing some serious contagion from Russia.

With the Belarusian rouble effectively pegged to the US dollar and the Russian rouble in a free fall speculation has been mounting in Belarus that the Belarusian rouble (BYR) could be devalued.

And then on Friday Belarusian central bank reacted to these pressures and hiked its key policy rate to 50%! Furthermore, the authorities tightened currency controls by imposing a 30 per cent tax on buying foreign currency.

Nothing is of course forcing the Belarusian authorities to do this other than the desire to keep the BYR pegged to the dollar. That commitment now means that we will get a very significant tightening of monetary conditions in Belarus and as nearly always when such a tightenning happens you will get a sharp drop in economic activity. Once again it seems like the Belarusian authorities are importing a crisis from Russia.

I am not saying that I am advocating a Belarusian devaluation, but it is also clear that given the huge dependence on Russia it is hard for Belarus to maintain a peg to the US dollar when the Russian rouble is in a free fall.

It looks like 2015 will be an “interesting” year for Belarus – we will have presidential elections in November 2015.