The decline in the natural interest rate in recent decades means that, in order to stabilise inflation, real interest rates (and, therefore, nominal interest rates) need to be lower now than two or three decades ago. The problem is that nominal interest rates cannot drop significantly into negative territory, since highly negative interest rates would adversely affect the financial sector’s intermediation capacity, having a detrimental impact on the  1  For example, Holston et al. (2017) estimate that in 2016 the natural rate in the United States was positive but very close to zero. 3  supply of credit, economic activity and inflation. 2 Hence, there is a lower bound to nominal interest rates. This lower bound introduces an asymmetry into the conduct of monetary policy. This asymmetry means that monetary policy is potentially very effective in combating high inflation episodes, but less so in combating deflation or even persistently low inflation. 3  In the years that followed the Great Financial Crisis, in a context of significant disinflationary pressures, the proximity of interest rates to their lower bound led the ECB to introduce a set of non-standard measures to provide sufficient monetary stimulus to preserve price stability. Among these measures, the asset purchase programme (APP), the targeted longer-term refinancing operations (TLTROs) 4 and the forward guidance on the future path of interest rates can be highlighted. 2  See, for example, Brunnermeier and Koby (2018) for a discussion of the effect of interest rates on banks’ profitability and their ability to lend.
However, it should be noted that in all those cases no central bank was pressurised to take the full responsibility and to be scapegoated, unlike the continual public attacks here against the BNB. In other countries the responsible institutions and politicians have always held the understanding that the central bank’s authority is of paramount importance for the calm of depositors and the stability of the banking system as a whole. All across the world that authority, and the independence of the central bank, are considered to be a long-term asset of the country. Consequently, central banks’ actions have not been compromised under the pressure of temporary economic or political emotions. All said so far does not mean that the BNB has no intention to draw conclusions for improving the efficiency of the banking supervision. Quite the opposite, the BNB has already undertaken serious steps in this direction. Back in the summer we publicly announced a number of measures and actions for reviewing the supervisory framework and practices. I wish to remind you that as early as in July we sent an official letter to the EBA inviting them to carry out an independent review of the quality, capacity, practices and procedures of the BNB’s Banking Supervision Department. In August we sent another letter to the International Monetary Fund (IMF) requesting them to organise a mission of the IMF and World Bank in Bulgaria under the Financial Sector Assessment Program (FSAP).