The forecast we published shows that in the coming years, given the base effects and convergence with the rest of the developed economies of Europe, the income level will continue to outpace inflation. This was commented on by the Member of the Governing Council of the Bulgarian National Bank, Iliya Lingorski, in the program “Wake Up“ on NOVA. He specified that income growth in the country will maintain this trend for a relatively longer period of time, as in recent years.
Lingorski made an important clarification that a forecast is very often confused with a prediction. “We, economists, do not predict the future. The forecasts we publish are analyses based on the perception of given conditions as a given, what the trajectory will be in the future if something does not change“, he pointed out.
With regard to internal factors, the member of the BNB Governing Council explained that since 2020 they have been of much greater importance and greater weight in terms of changes in price levels than external ones. “Since 2021, domestic private consumption has been growing. Of course, domestic private consumption is growing based on the fact that incomes are growing“, he added.
In his words, when income growth is such and when the economy is sensitive to external shocks – mainly due to the fact that the country is a large net importer of energy sources – the combination of these internal shocks falls into an environment that is pro-inflationary. Fiscal policy also plays a major role in this, if it is pro-cyclical. “If the growth of fiscal spending and fiscal expansion is actually counter-cyclical, namely that we have fiscal expansion in conditions of economic growth, then this fuels the inflationary environment“, noted Lingorski.
In relation to the topic of the euro and its introduction in our country, he stated that a joint study by the European Central Bank and the Bulgarian National Bank, published in February, shows that the effect of the currency revaluation itself on inflation is 0.4%. He added that the currency revaluation and the introduction of the euro have had no effects in recent months and years, since countries outside the eurozone, such as Romania and Hungary, also experience very high levels of inflation.
Lingorski emphasized that the currency revaluation was a major goal for the country and is undoubtedly an example of an extremely smooth and successful exit from a currency board monetary regime. According to his data, by the end of the first half of the year, almost 95% of the entire circulation of leva had already been withdrawn from circulation, and the remaining amount was worth around 800 million euros.
On the issue of interest rates and deposits, Lingorski pointed out that deposits are the main form of savings in Europe, with over 70% of savings in France and Germany being in the form of deposits in the banking system. In Bulgaria, the deposit base is around 85% of gross product.
“In conditions of a deposit base that grows faster than lending, naturally what depositors lose is attractive interest rates, as banks are ultimately not forced to compete for their deposits and offer higher interest rates, since banks cannot yet lend at such a rate“, he explained.
According to him, the appetite for risk in the economy has not yet caught up with the level of deposit growth, which is why interest rates for depositors continue to be low. At the same time, banks have also gained access to the ECB's deposit facility, which after the latest interest rate hike brings over 2% or 2.25% risk-free income for all excess reserves they have in the Eurosystem.