CBBH remains committed to further harmonization with ECB's reserve requirement policy

Governor of the Central Bank of Bosnia and Herzegovina (CBBH), Senad Softić, Ph.D. attended the meeting of the Governors of the regional Central Banks, which was organized by the Croatian National Bank (CNB) and the Faculty of Economics of the University in Rijeka, held on April 5, 2023 in Rijeka (Republic of Croatia).

The meeting was addressing the issues of monetary policy and small open economies facing high inflation. During the panel discussion, Governor Softić commented on the monetary policy of the CBBH, and expectations regarding changes in interest rates on the domestic banking market. On that occasion, he confirmed the commitment of the CBBH to harmonize the reserve requirement policy with the policy of the European Central Bank (ECB), taking into account the differences in the primary goal of the monetary policies of the ECB and the CBBH, trends in the domestic banking sector and the macroeconomic environment.

"Regarding the remuneration rates on the funds on the banks' reserve accounts with the CBBH, we are still committed to harmonization with the trend of the ECB's monetary policy, but not necessarily the fee levels. The CBBH still plans to keep the differentiated remuneration rate for the funds from the required reserve, in favour of those with the base in domestic currency," said Governor Softić.

As for the projections on interest rates in BH, he stated that there are currently no indications that the most important domestic sources of financing have become more expensive for banks in BH, despite the growth of reference rates in the euro area. The main reason for this is the focus on domestic sources of financing, which are not linked to reference rates in the euro area. In this way, banks maintain a profit margin, because interest rates on already contracted loans with a variable rate cannot be raised in accordance with the estimated perception of the increase in credit risk among some of their clients, due to a possible deterioration in the quality of the portfolio. Also, there is no significant demand for new loans, because clients, especially the household sector, are aware of the effects of high and persistent inflation on real available income and profitability.

"That's why we do not see a pronounced or systematic increase in interest rates on new loans. Although a significant increase in domestic interest rates is not expected in the short term," Governor Softić concluded.

Along with Governor Softić, this meeting in Rijeka was attended by the Governors of the Central/National Banks of Croatia, Slovenia, Montenegro and North Macedonia, representatives of the Croatian economy and public sector, and professors and students of the Faculty of Economics of the University in Rijeka.