PLATFORM FOR DISCUSSION  EVENT: BIS Meeting of the Working Party on Monetary Policy in Central and Eastern Europe DATE:  NATIONAL BANK OF THE REPUBLIC OF MACEDONIA  9–10 February 2017  info@nbrm.mk  LOCATION: Budapest, Hungary  www.nbrm.mk  Lingering low interest rate environment and monetary accommodation in the euro area - impact on the region? Anita Angelovska Bezhoska, Vice Governor of NBRM Ana Mitreska, Director, MPRD1, NBRM Sultanija Bojceva Terzijan, Deputy Director, MPRD, NBRM  1  Monetary Policy and Research Department. Lingering low interest rate environment and monetary accommodation in the Euro Area – impact on the region? A decade after the global crisis outburst, withdrawal of the ECB unprecedented monetary stimulus seems distant. The low interest rate environment, breaking of the nominal zero lower bound frontier and the enormous balance sheet of the central bank, linger on, being a reflection of the economic malaise and low inflation. Decisive standard and non-standard monetary policy2 action supported the impaired financial markets and impacted the terms of financing and hence the recovery of the Euro Area economy. Yet, the growth agenda is to be completed, as healthy expansion is still not achieved and balance sheet crisis in the Euro zone is still present.
The average rate of change in the last three years is still negative in countries like Slovenia, Hungary, Latvia, Croatia, Bulgaria, indicating that some structural obstacles, such as high NPLS, new regulatory requirements, deleveraging of the private sector, still act as drag for a stronger credit revival. Also, cleaning up of the balance sheet of the banks may to some extent distort the data on the credit support. In order to make a qualitative dynamic review of the main forces behind the lending behavior of the banks in the region, we do a recap of the main findings of the CESEE Bank Lending Survey from 2013 until present day4. The recap points to several important conclusions. First, credit supply from being tight in the second half of 2013, was gradually eased until the first half of 2015. Afterwards it stabilized, and no major changes were observed. In all of the surveys, including the last one for the first half of 2016, the new regulatory environment and capital constraints, as well as the NPL ratio are pointed as key factors which adversely impact supply conditions. Second, demand for credits was improving throughout the whole period, since the second half of 2014 in particular. Furthermore, since 2015 credit demand for investments purposes is also visible, signaling positive structural shifts. Third, access to funding of the banks, in general was not signaled as problem even at the beginning of the survey, indicating that funding problems that emerged at the beginning of the global crisis were alleviated.