monetary tightening can have significant implications on financial stability, in particular if it is unexpected, rapid, follows a long period of accommodative monetary policy, and if combined with weaker risk management, prudential regulation and supervisory oversight. this certainly raises the issue of possible tradeoff between price and financial stability, or so - called " financial dominance " phenomenon where financial stability concerns limit the monetary policy headroom. avoiding financial dominance requires two important prerequisites. the first one is having a strong banking system balance sheet, well prepared to manage the rise of interest rates. the second prerequisite relates to the availability of effective financial stability instruments, both macroprudential instruments aimed at preventing excessive risk taking, and resolution instruments designed to resolve banks in trouble without undermining financial stability. on the capacity of the banking system in the cesee, to absorb possible losses, it seems that so far risks are well contained. banks have faced the recent multiple crisis context with strong capital and liquidity buffers that were broadly maintained and in some cases even increased. the latest data reveal a capital adequacy ratio of 20 % on average across the region, while the liquidity ratio stands at nearly 27 %. despite the weaker economic activity, the quality of the credit portfolios remains strong, with npl 2 / 4 bis - central bankers'speeches ratios remaining below 4 %, better off compared to the pre - pandemic levels. still, there is no room for complacency as transition to higher - for - longer interest rate environment could certainly expose some vulnerabilities of the financial systems, and test their resilience again down the road. rising interest rates is a two - edged sword for the banks. on the one hand, it may help improve their earnings ( as usually interest rate pass - through on deposits is weaker than on loans ) and thus strengthen capital positions. on the other hand, it increases the banks'exposure to so - called " hidden losses " stemming from long - term debt securities held to maturity - as was the case with the silicon valley bank ( where half of its assets were placed in such securities ). in addition, interest rate risk may translate into credit risk leading to accumulation of npls and lowering of earnings. whether the banks will be net beneficiaries in short and, even more importantly, in a medium term will depend on the overall macro - financial context. and the current macro context is complex, as interest rate

anita angelovska bezhoska : opening speech – 9th research conference opening speech by ms anita angelovska bezhoska, governor of the national bank of the republic of north macedonia, at the 9th research conference, skopje, 29 september 2023. * * * honorable president pendarovski, dear governors and speakers, mr. uzan, your excellences, representatives of the academia and media, ladies and gentlemen, it is my great pleasure to welcome you to our traditional annual research conference, this time organized in cooperation with the reinventing bretton woods committee. recent series of shocks have been one of the greatest stress tests that our economic and financial systems, as well as our societies, have faced with in recent history. therefore, the conference aims to shed some light on the short and long - term macroeconomic implications. this also includes challenges in adequately calibrating or even redesigning macroeconomic policies that might have to deal with permanently changing economic relationships, implying that we might be entering a new world rather than returning to the old one. the pandemic, energy shock, war in ukraine have all yielded in an extremely complex and uncertain macroeconomic environment. we are facing with decelerating growth and probably long - term growth potential, on the one hand, and surging inflation, on the other, which although on a downward trajectory, is projected to remain above target in about 90 % of the economies with inflation targeting even next year1. concerning forecasts, however, given the size of the upward revisions of inflation, it seems that forecasting models are not well equipped to capture these changing realities and unprecedented level of uncertainty, although we are aware that, as the famous economist galbraith said " economics is not an exact science - the greatest error in economics is in seeing the economy as a stable, immutable structure ". central banks'response to this swift transition from low to high inflationary environment was a swift transition from accommodative to restrictive monetary policy. we have observed the most synchronized and the most aggressive global monetary policy tightening in the last 5 decades. no doubt, this tends to adversely affect the already slow post - pandemic recovery and expose some vulnerabilities in the financial systems. still, we should not forget the key lessons from the 70s and 80s that moving too slowly and too softly entails much more costly subsequent tightening and higher sacrifice ratio – higher foregone economic output to re - anchor inflationary expectations