- Political stability
- Fiscal affairs
- Monetary policy
- Regulated markets
- Privatisation
- Macroeconomic developments
submited on 05.02.2015 in category
We have witnessed significant moves in international markets in recent months. They include both sharp declines in oil prices - by over 40% since the end of October to the end of January - and changes in the exchange value of major world currencies. The Bulgarian lev which is pegged to the euro, also changed its relative value. The US dollar appreciated against the euro (and the lev) by just over 10% for the last three months, while the British pound appreciated by about 4% and the Swiss franc gained more than 15%.
A historical review shows that the recent changes in the value of currencies are not precedent but rather common and the most prudent economic players are prepared for them. For example, since the introduction of the euro there have been 14 different quarters in which the "dollar-euro" exchange rate changed by 10 percent or more. The peak-to-through difference in the "euro-dollar" exchange rate during this period is 87% - in other words, almost double. With regard to the "euro-franc" exchange rate the difference is about 70%.
For many businesses and households the integration of Bulgaria into the European economy - after the introduction of the currency board by pegging the Bulgarian lev to the Deutsche mark (now the euro) and the entry into the EU - was a clear signal that they should more actively use the euro and the Bulgarian lev. In recent years increasingly small share of credit and trade relations remained exposed to currency risk. If in the mid-1990s the dominant currency (outside the Bulgarian lev) was the US dollar, later on its role permanently and significantly declined.
Nowadays, the impact of exchange rate currencies such as the US dollar, the British pound and the Swiss franc on loans and household savings in Bulgaria is minimal from a macroeconomic standpoint. Deposits in foreign currencies other than the euro constitute 7% of household bank deposits at the end of 2014. Similarly to businesses, households also restricted the use of foreign currencies, replacing them, whenever possible, with the euro. When Bulgarian households borrow, they seem to opt for security and therefore choose loans that are denominated either in euro or in Bulgarian leva which are thus not subject to currency risk. Over 99% of bank loans are denominated in Bulgarian leva or euro, while loans in foreign currency other than the euro are more of an exception. Only 0.8% of all bank loans to individuals are set in foreign currencies such as US dollars, Swiss francs, Japanese yen and British pounds. As a result, the sharp currency markets’ fluctuations, we have seen lately, do not affect significantly the average borrower and the system as a whole.
In terms of foreign trade, Bulgaria is also more closely integrated with the European economy. Half of all imports and 2/3 of all exports are with EU economies. Therefore, the influence of currency movements is rather limited and should not induce a significant change in the macroeconomic landscape.