samchain/econo-pairs-v1 huggingface dataset:
Dimitar Bogov: Seventy years of central banking activities in the Republic of Macedonia Speech by Mr Dimitar Bogov, Governor of the National Bank of the Republic of Macedonia, at the ceremony of marking 70 years of central banking activities in the Republic of Macedonia and order award by his excellency Dr Gjorge Ivanov, President of the Republic of Macedonia, Skopje, 19 October 2016. * * * Honorable President of the Republic of Macedonia, Your Excellency, Dr. Gjorge Ivanov, Distinguished Members of Parliament and representatives of the Government, Honored Excellencies, Esteemed guests, ladies and gentlemen, It is my pleasure and honor, on behalf of the National Bank of the Republic of Macedonia and on my own behalf, to express my sincere gratitude to His Excellency, the President Dr. Gjorge Ivanov for the high recognition he has awarded to the National Bank tonight. I would also like to thank all of you for being present at the celebration that marks this great anniversary. It is a great honor to be awarded the “Order of Merits for Macedonia” by the head of state, in the year when the National Bank celebrates 70 years of central banking activities in the Republic of Macedonia. This award is a great recognition for the overall work of the National Bank. It is strong confirmation of the enormous contribution of the Bank to the state all these decades – as a central institution of the monetary system and a key pillar of macroeconomic stability.

Resolution is about coping when, notwithstanding those measures, we do face severe distress in a financial institution. The trigger for putting a financial firm into resolution should essentially be when the criteria for the authorisation of the bank (or dealer, or whatever) are no longer met, there is no reasonable prospect that they are going to be met in the future. Which in practice, actually means that the institution is effectively insolvent or what amounts to insolvency. Effective resolution regimes are designed to manage these situations. They are about making the private sector pay rather than making the taxpayer pay through the mediation of a public sector bailout when, because of the firm’s provision of critical services, we cannot afford simply to put it through a standard corporate bankruptcy procedure. Against that background, I would make five points. First of all I would say that it is absolutely essential that each of the EU member states, and indeed all the countries in the world, should have a national resolution regime for conventional commercial banks. Not to have such a regime is a great mistake. It can indeed be a disaster, as the UK very sadly demonstrated through the Northern Rock problem, with spillovers to confidence beyond our borders. Why do I start with this? Essentially because, at present, very few countries of the EU – including until 18 months or so ago the UK – have a national resolution regime for conventional commercial banks. This is a real gap in the infrastructure for the financial system.
Similarly, although it is not possible to completely eliminate inflationary pressures stemming from rising world oil prices, efforts are nonetheless needed to moderate their impact on the economy. To this end, such efforts as conserving the use of petroleum products can go a long way in reducing the attendant inflationary pressures. Allow me now to turn to the issue of interest rates. As you may be aware, interest rates refer to the price of money. Over the last few years the general trend in commercial banks’ weighted average lending rates has been largely downwards. As at end-June 2005, the weighted average base lending rate had reduced to 28.6% from 36.2% in January 2004. The fall in lending rates has in large part been induced by a fall in yield rates on Government securities as banks in Zambia have tended to use yield rates as anchors. BIS Review 53/2005  1  However, at the current levels, lending interest rates are too high to contribute to sustainable productive investment. This calls for concerted efforts among other key stakeholders, namely, the Government, commercial banks and the borrowing private sector to continue playing their respective roles effectively to bring about a further reduction in the lending interest rates. It has also to be appreciated that inflation is another major contributing factor to high interest rates as banks set their lending interest rates above the rate of inflation thus the need to reduce the high inflation that has characterised the economy.

The European Commission’s projection for Spain is that spending on health and long-term-term care will, in 2050, be almost 2 pp of GDP higher than in 2016. Addressing pension system reform The upward pressure on spending will be even greater under the pensions item. Here, following the suspension of the application of the compensatory mechanisms included in the 2013 reform, we will need additional measures to ensure their future sustainability. The starting point for the debate on this question should be to set the level of benefits the public pension system should provide and to ensure the mobilisation of sufficient funds to afford them, establishing basic intergenerational equity parameters. In this respect, some countries (such as Germany, Sweden and Italy) have opted for mechanisms adjusting life expectancy to the level of benefits or to retirement age to stabilise the system. Moreover, it would be advisable to increase their transparency and strengthen the link between contributions made and benefits received, ensuring at all times a level of sufficiency. The introduction of incentives to better align the effective and the legal retirement age would also be desirable. 4.4. Strengthening inclusion policies As a fourth consideration, we must address the challenge posed by the increase in inequality. We are starting the current bout of recession with a higher level of inequality than that at the end of the previous expansionary cycle, given that it is affecting to a greater extent groups which generally earned relatively lower income.
The Riksbank has also cut the repo rate to the lowest level it has been at since we introduced an inflation target. How monetary policy can be conducted under the prevailing conditions is a question that I will discuss in more detail later. The financial crisis has of course changed these conditions a great deal. But before we get into that, I would like to say a few words about how monetary policy is supposed to work under normal conditions. How monetary policy works normally Normally, monetary policy aims to keep inflation at a low and stable level and to stabilise the real economy. To achieve this, the Riksbank controls the shortest market rate, that is the overnight rate which is the interest rate on loans between the banks from one day to the next. The overnight rate in turn affects the interest rates charged to the general public, and thereby activity and prices in the economy. We have a system in which we influence the overnight rate by determining the conditions for the banks borrowing and lending with the Riksbank so that it is close to our policy rate, the so-called repo rate. The repo rate expresses the level at which the Riksbank wants the overnight rate to lie. The way in which the monetary policy conducted has an impact on, for example, the banks' lending rates, the development of the real economy and inflation is usually called, somewhat loosely, the transmission mechanism.

The banks have thus increased their reserves at the Riksbank. The Riksbank has also lent almost SEK 200 billion in US dollars. We have financed this partly by borrowing against the currency reserve and partly by means of a loan agreement with the Federal Reserve. The fact that the currency reserve appears to have increased is primarily due to exchange rate effects. The liabilities item "Other" includes the Riksbank's net income and the revaluation account. This item has increased mainly due to exchange rate effects, but also because we have earned quite a lot of money from these transactions. Some other central banks, such as the Federal Reserve and the Bank of England, have gone one step further. Apart from increasing their lending to the banks, they have also bought various types of domestic financial assets. When a central bank lends money to the banks, or purchases different types of assets, the banks' access to funding increases. This in turn increases the so-called monetary base on the balance sheet's liability side, that is the total of outstanding banknotes and coins and the banks' deposits in the central bank. A common feature of the measures taken by the central banks is thus that they have inflated the balance sheets and increased the monetary base. There are, nevertheless, some differences and different central banks have also described their measures in slightly different ways.
My central scenario for the short term is a scenario where after a couple of months inflation will recede in the euro area and come back “below but close to 2%” in accordance with our definition of price stability. It is not unusual to witness commodity and consumer prices acceleration in the initial phase of an economic slowdown, as there is some inertia in employment and commodity prices dynamics with respect to activity. This has happened previously at the end of the 1990s, with a subsequent moderation in inflation. In the short run, recent inflationary shocks are likely to maintain inflation at a high level for most of 2008 as we may expect a significant degree of persistence in energy, industrial commodity or some food price increases (such as meat). In the euro area, HICP inflation has reached 3.3% in February. It might remain well above 2% in the coming months but ebbs later this year according to ECB staff forecasts. These projections rely on a scenario of global economic slowdown and moderation in commodity prices, which would contain pressures on capacity utilisation in the labour and product markets. They are all the more credible than we do not see at this juncture a major diffusion of price increases: less than 30% of the consumption basket (energy and food) are responsible for more than 60% of the overall increase. There are nevertheless some upside risks to these projections. First, further shocks on food and commodity prices cannot be ruled out.

These two objectives contain the same “subject to that” language used in 1997 in the Monetary Policy Committee’s objectives. It means that there is a hierarchy of objectives which the FPC must observe. But, two further points are relevant here. First, resilience and economic growth interact, so they are not fully independent. An economy that displays stable growth is more likely to have a stable financial system, and vice versa. Second, policy is necessarily forward-looking, in that we are concerned with stability and growth in the future, since today’s outcomes are so to speak, “baked in”. This means that, in thinking about the hierarchy of objectives, in my view we have to take a forward-looking assessment of the probability of success, rather than saying we should complete one and then do the other. Financial stability is more complicated than monetary policy in at least one respect, namely that it does not reduce to a single target expressed as a number. Rather, it comes in the form of recommendations, in the plural, expressed as words. You would think that as central bankers and public officials we should love that, spending our time crafting language in a form that only we really understand. Let’s not get carried away here – there is a danger that  BIS central bankers’ speeches  1  by doing so we create uncertainty about our intentions. This danger of creating uncertainty exists because we are finding our way in a new and difficult area of policy.
The economy is experiencing large, negative supply shocks pushing output and inflation in opposite directions. The correlation between estimated output gaps and inflation has become more blurred and uncertain than in the past. And the trade-offs facing monetary policy have become more complicated. In other words, monetary policy has become significantly more complex. In designing the appropriate monetary policy response, central banks need to make two key judgements: one on the origin of the shocks hitting the economy and another on their persistence. I will argue today that euro area inflation has been driven by soaring energy prices and enduring supply constraints even as the economy reopened after the crisis phase of the pandemic, unleashing pent-up demand. But the boost to demand from the reopening is fading, and we have no evidence as yet that supply shocks are having large and permanent effects on output potential. And if supply shocks durably lowered potential, our policy response would have to consider that they also affect demand by depressing current and future real income. Against such a backdrop, monetary policy has to ward off the risk of a de-anchoring of inflation expectations, which could lead to second-round effects in the form of excessive wage and price-setting dynamics. That implies adjusting monetary conditions and frontloading rate hikes. But so long as expectations remain anchored, the calibration of our policy adjustment should take into account the unprecedented uncertainty of the post-pandemic world.

[23] For instance, workers may accept some loss in real income as demand softens, costs can no longer be passed on easily to consumers and risks to job security increase. In some euro area countries, wage negotiations focus on core inflation rather than headline inflation. This can be seen as a recognition that the terms of trade loss has to be borne – at least to some extent – rather than retrieved. Also, in this setting, households may choose to reduce consumption – instead of smoothing it and mitigating the hit to spending – because a permanently lower potential output would also permanently reduce their future income and wealth. Recent research using endogenous growth models shows that, if supply shocks cause “scarring”, the prospect of lower potential output reduces investment and productivity growth. By compressing households’ future income and their current spending, it can cause demand to drop by as much as – or even more than – supply. [24] All told, these effects imply that, even in the face of lasting consequences of supply shocks on potential output, the implications for the output gap, inflation dynamics and optimal policy calibration can only be  derived over time. And this reinforces the case that, for as long as inflation expectations remain anchored, monetary policy should adjust but not overreact. [25] ECB staff projections published in September 2022, which foresee inflation close to 2% at the end of their horizon, are consistent with a withdrawal of monetary policy accommodation.
Here, I would like to draw the attention and explain that the concept “open banking” implies the creation of technological developments, with a view that the information of banks’ clients be open to third parties. In this regard, we should keep in mind that – though digitalisation is so far desired by all of us here – this development needs rather complex investments and regulations, which promote innovation in an environment that will guarantee a maximum security. Taking into account that the need for establishing a highly prudent environment turns more meaningful in case of Albania – where both financial education and inclusion are relatively low – the demand for market’s actors to make safe steps is quite important. Beyond “open banking” and the re-dimensioning of market through the introduction of new actors and services, I would like to mention the set of the undertaken regulatory measures and infrastructural developments, which have been focused exactly on the promotion of electronic payments in the framework of the National Retail Payments Strategy (NRPS). It is worthy emphasising that the so far implemented measures have driven to the successful accomplishment of the objectives defined in the Strategy since 2021. This success is a contribution of a broad gamma of actors, where banks in particular, and institutions, have played a key role.

Property-related debt – for residential and commercial real estate purposes – makes up around 60% of private nonfinancial sector debt in the UK. And, of course, the counterpart of that is that domestic property-related loans make up around 55% of the domestic loans of the UK banking sector; 76% when financial sector loans are excluded. 1 Moreover, the evidence is pretty clear from history, and across  1  Non-bank lenders are also an important source of finance, providing 15% of all property-related loans according to Bank staff estimates. BIS central bankers’ speeches  1  countries, that there is a strong and special link between booms in property-related debt and financial crises in a way that is much less true for other assets like equities. 2 I want also to reflect a little today on the health of banks in the UK. Since last summer, and particularly since the turn of the year, investors have written down the value of banks in advanced economies. Does this signal concerns about banks’ resilience and robustness? Or about their returns? The Financial Policy Committee The FPC is charged with identifying risks and taking action to protect the resilience of the UK financial system. In essence this means two things. First, we need to be confident that the regulatory framework in the UK addresses the risks not just of individual financial firms, important though that is, but also the risks inherent in the financial system as a whole.
Regulatory and supervisory authorities should strengthen prudential and other financial market regulations in order to deepen financial markets and improve investment climate, whereas central banks should focus more on greater currency flexibility and price stability. In conclusion, as a central banker, I would like to highlight three key messages from the thoughts I have shared with you. First, to achieve price stability, central banks need to ensure efficiency of financial infrastructure and maintain smooth operation of financial services. An efficient and effective payment and settlement system is at the core of financial infrastructure. Second, removing market imperfections is essential for the smooth operation of financial systems. Establishment of credit bureaus to improve exchange of information on credit history of economic agents and reducing fiscal dominance are important steps to ensure sound-lending activities. In this context, the role of micro finance in promoting the access of the low-income segment of the society to credit should be supported and encouraged. Third, the overall level of external financing and its composition is important for domestic access to finance. The benefits of capital inflows to economic growth would be higher with a developed financial sector. Central banks could best support this process through their contribution to macroeconomic stability. Thank you. 4  BIS Review 21/2008

Last summer I said that the decision as to when to start raising Bank Rate would likely come into sharper relief around the turn of this year. Well the year has turned, and, in my view, the decision proved straightforward: now is not yet the time to raise interest rates. This wasn’t a surprise to market participants or the wider public. They observed the renewed collapse in oil prices, the volatility in China, and the  4  Refers to non-farm business sector unit labour costs in the US and unit labour costs based on the MPC’s backcast in the UK. 5  Where openness is measured by the share of exports in GDP. 6  Vlieghe (2016), Rachel and Smith (2015), Carney (2013) and Carney (2010). BIS central bankers’ speeches  5  moderation in growth and wages here at home since the summer and rightly concluded that not enough cumulative progress had been made to warrant tightening monetary policy. The outlook for monetary policy depends on three things: the MPC’s objectives, its strategy, and the UK’s economic prospects. Our objective is clear: to return inflation to the target in a way that avoids undue volatility in output and employment. The MPC’s strategy for achieving the inflation target varies over time, and it depends on the nature of shocks hitting the economy and the risks facing the economy.
Because the home is the primary source of collateral for most households, financial institutions are less willing to lend when house prices have declined substantially and could fall further. In addition, problems in the foreclosure process and obstacles to efficient modification of loans in securitizations, which I’ll describe in a moment, make a house of a given value less attractive as collateral to secure a loan. As a result, as home prices have fallen, financial institutions have tightened  3  FRBNY Quarterly Report on Household Debt and Credit 2011 Q3. 4  Because housing is such an important asset for many households, household expectations of future income may also be influenced by what they observe happening to house prices. 5  These households have particularly strong incentives to increase saving to recreate a buffer against adverse events and to enable them to move house. Source of data is CoreLogic. 2  BIS central bankers’ speeches  lending standards. This has reduced the amount of credit available for households, including for small business formation. Fourth, the big drop in house prices has made it more difficult for borrowers to refinance. This has undercut to a degree the ability of monetary policy to support demand. Traditionally, refinancing activity has been an important channel through which lower interest rates support spending and employment. Refinancing frees up borrower income. Because those who refinance tend to have a higher marginal propensity to consume from income than the investors receiving the mortgage payments, such refinancing activity increases overall demand.

One reason behind the problems in the labour market is that we have not really been able to keep up with the structural change process that follows in the wake of globalisation or, expressed in another way, that we have not been quick enough in adapting to the increased pressure for change when, for instance, the manufacturing industry is challenged by low-cost countries in eastern Europe and Asia. To summarise: our look back in time leads to the conclusion that the change in monetary policy regime was a success, despite the fact that the period since the mid-1990s was a fairly turbulent time for conducting monetary policy. There have been, for instance, periods of considerable financial  4/7  unease and extraordinary events of various types. A few of the many examples are: the Asian crisis, the Russian crisis, the IT bubble and the acts of terrorism on 11 September 2001. In addition, food prices and various energy prices, in particular oil prices, have periodically varied substantially for varying reasons, such as war, natural disasters and dry summers. I would now like to give you a brief summary of the current economic situation and then conclude with a few thoughts on future challenges for monetary policy. The current economic situation As you have probably noted, we Executive Board members chose to hold the repo rate unchanged at our most recent monetary policy meeting in late October. This decision was also in line with market expectations. The outlook for the Swedish economy is bright.