In the Central Bank’s view, the real estate market will cool down significantly in the near future and private consumption growth will normalise next year. It might seem natural to ask whether the Bank’s concerns about inflation will not vanish overnight then, because housing prices have been the only factor keeping inflation figures high. Unfortunately the matter is not  BIS Review 28/2006  1  so simple. There is no doubt that the Central Bank’s policy rate measures have played a crucial part in helping the other index components to counteract house price inflation in the recent term. The movements in the exchange rate of the króna in the past few weeks exacerbate the challenge of steering inflation back onto a more moderate course. Of course it would be easy to cite repeated comments and Central Bank declarations that the strength of the króna was unsustainable in the long run, and the many arguments supporting them. However, the Central Bank had hoped that the inevitable exchange rate adjustment would have occurred somewhat later than it actually did and would also have been more measured. The exchange rate adjustment would preferably have taken place after a slowdown in house price inflation and a substantial easing of the pressures which, according to newly published national accounts figures, were even greater than previously thought. Under these circumstances, what the Central Bank must do is clear and it has no alternatives.
The ease of the lending rates was pertinent both for households and corporate sector, though in some of the countries, like the Baltic States, Romania, Bulgaria and Serbia, the correction of the interest rates on loans was more pronounced at the corporate segment. Macedonia and Poland have the feature of a sharper correction at the housing segment, compared to the corporate. The magnitude of the correction along different sectors is conditioned upon many specific factors, the initial levels, the riskiness of the portfolios, for instance, and hence it is difficult to infer which banking sectors had larger “progrowth” adjustment in the interest rate policy. What is also important is the fact that the costs of financing were reduced, and the intensity of the reduction did not differ much compared to the changes of the key policy rate (highest difference of about 2 p.p. is observed for Macedonia, Serbia and Bulgaria). Thus, access to financing for both households and corporate sector was facilitated, contributing to higher propensity to borrow and underpinning economic recovery.