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Proceedings of a conference co-hosted by the Bank of Albania and the International Monetary Fund in May 2017.
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I would like to thank the Bank of Albania, the IMF, and the Swiss Embassy for your kind invitation to speak at this forum. I was quite interested in the various discussions on the macroeconomic vulnerabilities of highly euroized economies in the context of negative euro area interest rates. These discussions provide a good background for my presentation on reserve management in the region.
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I would like to thank all the participants for the presentations and for the discussions that we have had. I said yesterday that I was looking forward to learning from all of you, and I can report to you that I have indeed learned a lot and I hope that each of you has learned as well.
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I will cover the conduct of monetary policy in Serbia, with regard to our main financial stability concerns.
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NEGATIVE EURO AREA INTEREST RATES AND SPILLOVERS ON WESTERN BALKAN CENTRAL BANK POLICIES AND INSTRUMENTS MAY 4 – 5, 2017
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It is my pleasure to be here and to benefit from the exchange of opinions and experiences. As you may know, pursuant to the Central Bank of Montenegro Law, the Central Bank of Montenegro (CBCG) sets out fostering and maintaining the financial system stability and a sound banking system and safe and efficient payment systems as its main objectives. The financial system in Montenegro is bank-centric. In a dollarized (euroized) and bank-centric systems, such as the one in Montenegro, a stable financial system is a condition for creating and preserving the stability of the economic system.
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With this presentation, I would like to share the experience of the Bank of Albania (BoA) with the estimation of the lower policy rate bound, at a time, at the beginning of 2016, in which BoA was confronted with very low inflation rates, a challenging external environment, and a risk of disanchoring inflation expectations. The presentation is based on the framework developed and deployed by the Bank of Albania to estimate how far they could lower policy rates to counteract downside risks to price stability. The framework benefited from the IMF Technical Assistance (TA) funded by the Swiss Government. The reason we are presenting it here and have written a Working Paper is the belief of the authors that in a context of lower global real interest rates more frequently monetary authorities will be confronted with similar policy challenges and may benefit from the conceptual framework developed by the Bank of Albania.
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After a very interesting first day of the conference, I am honored to start the second day and introduce a panel of highly distinguished central banks’ senior policymakers and economists.
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I will speak on the financial stability experience of Kosovo. Like Montenegro, we have also adopted the euro unilaterally. This makes a difference compared to other countries with unofficial, partial euroization. So, I will try to make a distinction between a central bank that has monetary policy and a central bank that does not have monetary policy, and focus on the extent to which this is relevant for financial stability purposes.
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Euroization is a common phenomenon in the Central, Eastern, and Southeastern European (CESEE) region. Hence, the global environment of low interest rates and the ensuing lower interest rate differentials between local and foreign currencies also have a notable impact on euroization. In this chapter, we will focus on this important aspect within the broader topic that the conference sketches. We present here empirical evidence from the Oesterreichische Nationalbank (OeNB) Euro Survey2 building on a number of research papers published by OeNB researchers on the topic of euroization in CESEE.