Central Bank’s Governor in an interview with BNT: Interest rates on loans and deposits in Bulgaria will increase more and more noticeably

Interest rates on loans and deposits in Bulgariawill start to increase more and more. This was confirmed by Bulgarian National Bank’s Governor, Dimitar Radev, on July 27 in his first TV interview after his re-election for a second term as the head of Bulgaria's central bank. According to him, the higher interest rates will be felt at the end of this year.

In "More of the Day" programme, the BNB Governor explained that monetary and fiscal measures are needed to tackle inflation in the country. The former are being applied by the BNB in the succession of crises – the Covid-19 pandemic and the war in Ukraine.

"There is a clear trend of tightening of monetary conditions, fiscal conditions, political signs that we are going to fit into a 3% deficit, but what we have is still ongoing fiscal expansion, and it is not working to contain inflation. Quite the opposite. Investment is going down, wage costs are going up. i.e. when we have this kind of spending structure, it is definitely a factor in increasing inflation, not in reducing it. Bulgaria needs a disciplined fiscal policy."

Interest rates in Bulgaria are rising more slowly because the banking system in the country has very high liquidity, but nevertheless the public and businesses will start to feel the increase this year already, Radev said.

"This trend of increasing interest rates will be noticeable towards the end of this year and next year. There will be an increase in the interest rates of loans and deposits."

Banks in Bulgaria undergo annual stress tests and independent assessments, and their indicators are above the EU average.

"Bulgaria is one of the very few countries in Europe where Russian banks have not been and are not operating. Our banking sector has virtually no exposure to Russia or the Russian banking sector. Therefore, the effects of the war as a result of the sanctions imposed on the Russian banking sector did not affect our banks in any way," Dimitar Radev said.

He dismissed criticism that the adoption of the euro meant a loss of national identity, explaining that the monetary regime was currently very restrictive and the BNB could not operate on the free market.

"It is not true because first of all what we have as a monetary regime at the moment is actually a very restrictive, very expensive monetary regime, in which we have very limited instruments to operate. We cannot set base rates for policy purposes, we cannot participate with open market operations, something that the European Central Bank does. At the moment, we are like a sculptor who has been given only the hammer, but not the chisel. Achieving the same result with the hammer is considerably more difficult, more expensive and wastes a lot of material. When we are part of the euro area, we will have the chisel. If we look at it purely symbolically, we are now talking about the design of the coin. I have an agreement in the Governing Council, we are moving the issue forward and all the Bulgarian symbols will be there."

In Dimitar Radev's words, the euro with Bulgarian symbols will be used not only within the country, but also by hundreds of millions of people in Europe and beyond. He also explained why the two-euro coin will bear the inscription "God Protect Bulgaria".

"This is the tradition, when we resumed minting coins. In fact, this inscription was included in the design of the coins until 1942-1943. This is in keeping with the best traditions we have in minting of coins."

Radev explained that the BNB is also involved in the discussions on the digital euro, which is defined as a digital revolution in the monetary sphere, but there is still the question of whether Bulgaria will be part of this change.