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Bulgaria’s Central Bank increases pressure on banks to hold their credit expansion.
submited on 23.02.2005 in category Monetary policy
submited on 23.02.2005 in category Monetary policy
The monetary authorities in Bulgaria have been trying to control the credit expansion in the county since mid-2004. In a context of a currency board, what can be done is not much. Still, the Bulgarian National Bank have already increased the minimum reserve requirements a series of measures for the last nine months.
A new regulation of the central bank is to be put in action today. The policy’s goal remains unchanged – formally “reduction of the credit expansion to a sustainable level”. For the first time we witness a quantitative measure set in the regulation. Although articulated in microeconomic terms, it seems that BNB will be aiming at a growth rate of the credits to private sector at 24% per annum. In 2004 alone, the credit to private borrowers grew by 48%.
For now it is unclear how the recent measures of the central banks have affected the credit growth and interest rates. Though credit growth decelerated in the second half of 2004 it is hard to decompose the effect of the policy. Thus we remain cautious predicting the concrete effects of the new regulation. Still we believe that their effect on interest rates would be negligible. Local banks have access to a relatively vast source of capital in the face of their international umbrellas. We expect a certain acceleration in the increases of banks’ capital, partly due to the new monetary measures.
A new regulation of the central bank is to be put in action today. The policy’s goal remains unchanged – formally “reduction of the credit expansion to a sustainable level”. For the first time we witness a quantitative measure set in the regulation. Although articulated in microeconomic terms, it seems that BNB will be aiming at a growth rate of the credits to private sector at 24% per annum. In 2004 alone, the credit to private borrowers grew by 48%.
For now it is unclear how the recent measures of the central banks have affected the credit growth and interest rates. Though credit growth decelerated in the second half of 2004 it is hard to decompose the effect of the policy. Thus we remain cautious predicting the concrete effects of the new regulation. Still we believe that their effect on interest rates would be negligible. Local banks have access to a relatively vast source of capital in the face of their international umbrellas. We expect a certain acceleration in the increases of banks’ capital, partly due to the new monetary measures.
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