Krstevska: Gradual tightening of basic interest takes economy into account
Skopje, 25 October 2022 (MIA) – Tightening of the monetary policy should be adapted to the conditions in the economy, and gradual tightening is more prevalent in practice. Gradual tightening is also more predictable for banks, which are expected to monitor the signals and gradually adjust deposit interest rates. The National Bank applies gradual increase of the interest rate, which indicates at risks surrounding inflation in the past months and measures are taken consequently, while also taking into account the economy, says the National Bank’s chief economist Aneta Krstevska.
In an interview with daily newspaper Vecher, Krstevska notes that in addition to the increase in the basic interest rate, the National Bank has taken other measures that also affect the banking system and the economy.
“It should be noted that the measure to release banks from the mandatory reserve for newly selected loans for green finance encourages both lending and the transformation of the economy towards greater use of renewable energy sources, which is key in this crisis period,” said Krstevska.
She pointed out that amid the current inflation circumstances, it is particularly important to stabilize expectations, i.e. to provide conditions for setting real prices for products by economic entities - prices that are a real reflection of current costs. Stabilizing consumer inflation expectations, on the other hand, should ensure that additional demand and building supplies are contained, which can also fuel inflation.
“For these reasons, central banks around the world see a need to contribute to the stabilization of inflation expectations, as a necessary precondition for reining in inflation. Through monetary tightening, a message is sent to limit any pressure on prices from demand and it contributes to creating an environment in which economic entities behave rationally, and not according to perceptions and "heated" expectations. It seems that at the moment central banks and international financial institutions are united in the fight over inflation as the biggest global problem, on which growth prospects depend. Namely, let's not forget that price stability is the best environment for investments and economic growth,” said Krstevska.
According to Krstevska, although it is difficult to talk about the further movement of inflation in these extremely uncertain global circumstances, the fact that projections for global inflation from all international institutions point to a slowdown during 2023 is significant for the future path of inflation.
