Dimitar Radev: It is extremely important to achieve the highest possible synchronisation of monetary and fiscal conditions in Bulgaria. With a clear direction of the monetary policy, the focus falls on the upcoming budget decisions Speech by Mr Dimitar Radev, Governor of the Bulgarian National Bank, at the opening of the "Banks and Business" Conference, organised by Capital newspaper, Sofia, 1 December 2022. *** Dear ladies and gentlemen, I am going to speak briefly about three subjects: macroeconomic environment dynamics; the state of the banking sector; and the path to the euro area. Macroeconomic environment dynamics The dynamics of the macroeconomic environment is strongly influenced by internal political and geopolitical factors. The unknowns surrounding the development of these factors increase the risks, and the uncertainty respectively, of macroeconomic assessments and projections. Such an environment entails, inter alia, an appropriate calibration and harmonisation of monetary and fiscal policies. The monetary policy outlook is clear. In brief, this outlook relates to the increase in interest rates and the gradual withdrawal from the unconventional measures that have been implemented in the past few years. For a quite some time now the real question has not been about the monetary policy direction anymore but about the parameters of the monetary policy tightening. These parameters seem to range between the neutral and the restrictive levels of interest rates. The purpose of this exercise is clear: to curb and reduce inflation down to healthy levels by limiting the demand which central banks can influence.

State of the banking sector The macroeconomic environment dynamics, which is strongly influenced by internal political and geopolitical factors, presents new challenges to the banking sector as well. The sector is meeting these challenges in a strong position, both institutionally and as specific indicators. The institutional framework is determined to a great extent by the country's membership in the European Banking Union, one of the key euro area institutions, and also by the related close cooperation established between the BNB and the ECB. For example, our banking supervision is an inseparable part of the Single Supervisory Mechanism of the European Banking Union – from participation in the joint supervisory teams, through the horizontal networking, to the full-fledged participation in the decision-making process of the ECB Supervisory Board. In this sense, the Single Supervisory Mechanism is a high quality stamp with regard to the standards of the supervisory activities performed by the BNB, and with regard to the quality of the regulatory, prudential and analytical framework of the supervisory process. The consolidation of the institutional framework in addition to the reforms over the recent years explains the good state of the banking sector. I will illustrate this with some numbers: The liquidity coverage ratio at the end of October was 253.5%, and the liquidity buffer was BGN 38.4 billion with a continuing trend of growth of attracted funds; Capital adequacy according to the latest data is 20.47%, with the capital surplus above the general supervisory requirement for capital and macroprudential buffers standing at approximately BGN 2.9 billion.