Their effect will soon be exhausted and the increase will stop as pressures from the demand side have been completely absent. Temporarily higher inflation does not mean that price stability is undermined. Over the last two years, inflation in the Euro area has continuously been well above the ECB’s target, but no one gets upset about it, as it is clear that it is not a consequence of overheated domestic demand. Monetary policy cannot prevent the initial impact on prices from the supply shocks, but it can prevent the transmission effect on other prices. NBRM will not allow price stability to be undermined. BIS central bankers’ speeches  1  You have recently admitted that monetary policy is facing several challenges, which call for contrasting reactions. Can you explain what you think specifically and how you would solve this problem in the monetary sphere? If there had not been price shocks of the global commodity exchanges, the NBRM would have had room for further easing of the monetary policy. However, due to the pressures from international prices we must give a clear signal that we will not allow undermining of price stability, while simultaneously adjusting the monetary policy to the slower economic growth. It is a great challenge, a difficult task, but not impossible. Now is the time when many central banks apply unconventional monetary policy measures to respond to the unusual economic trends.
So it is logical to expect stabilization, and perhaps reduction of the level of banks’ bad loans. Banks which have huge excess liquidity, have reservations regarding lending to companies, and they locate the reason in the emphasized risks. Is the placement of those funds in Treasury bills and Central Bank bills a solution, even at the cost of a decline in the economy? The monetary policy is trying to trigger a certain behavior of the banks which it considers is appropriate at a particular time. But banks independently manage excess liquidity and it is their decision whether more will be placed in the form of loans or in risk-free securities. At the beginning of the second quarter, with several measures we released substantial excess liquidity placed in CB bills over the level that we considered it was necessary to be maintained. It is a fact that banks placed only a small part of that surplus in loans. One of the reasons is certainly the perception of banks for increased risks in the domestic and global economy. But just as important, if not even more important reason are the corporate strategies of the banking groups in the Euro area that are owners of the Macedonian banks. Some of these banking groups have serious problems in their home countries. Although their banks in Macedonia have excellent capitalization and record liquidity, they must implement the strategy of their foreign parent banks, which due to the insufficient capital, refrain from lending in all countries where they are present.