The public pressure is growing, especially from the business sector, on commercial banks to cut interest rates.
By Aleksandar Pavlevski for Southeast European Times in Skopje -- 27/10/12
The National Bank of Macedonia dropped the bond interest rate in May. [NBRM]
The National Bank of Macedonia, along with citizens and businessmen, are urging commercial banks to reduce loan rates as a way to support economic growth in the country.
The National Bank reduced interest in bonds from 4 percent to 3.75 percent in May.
Bond interest rates are a reference point for national banks. They signal the direction of monetary policy and determine the interest rates on the loans the national bank gives to commercial banks to keep them liquid.
Because the country's commercial banks have been keeping their loan rates the same, citizens said the banks are profiting.
Prime Minister Nikola Gruevski echoed the calls for reduced interest rates on commercial loans.
"National Bank's decision to cut the interest rate [was] to induce banks for greater investment in the economy, the industry or the private sector," Gruevski said.
The banks have huge liquidity due to reduced lending, he said, adding that the relaxing of the monetary policy is a mechanism by which the National Bank wants to encourage banks to divert funds to the domestic economy, thus helping companies survive the current crisis.
"Without a new investment cycle, which can be initiated from the banks, there would be no quick exit from the economic crisis. They can help in this time when we are facing a heavy illiquidity and reduced production," Orce Bogranovski, owner of a small textile factory in Kumanovo, told SETimes.
Many say that banks have always had a "lack of understanding" when it comes to reducing interest rates.
"Slow and modest when they need to reduce, but fast and efficient when they should raise interest rates is the basic principle in the business policy of the Macedonian banking sector in recent years," said Trajko Trifunovski, a client in a bank from Skopje.
"[Commercial banks] are slow and rigid when it comes to downward adjustments of interest on loans," Catherine Nikolov, a small business owner in Skopje, told SETimes.
Mirce Čekredži, the vice president of the Chambers of Commerce, said that is time the commercial banks to respond for the benefit of all.
"Lowering interest rates on treasury bills is a major signal for the easing of monetary policy. We believe it is a positive signal, which will be followed by the commercial banks in a way that they will reduce interest rates on loans for economy," Čekredži told SETimes.
Last year, banks issued just 257 million euros in loans up from the previous year, resulting in a 1 percent credit growth to 8.5 percent.
Given that banks placed millions in foreign banks, state bills and treasury bills, it is easy to conclude that the vast majority of the money in the banks ends up in low-risk instruments rather than the economy.
The Commercial Bank in Skopje said that by dropping the reference interest rate from 4% to 3.75%, the National Bank of Macedonia can not yet foresee any further economic growth or turbulence in the sector.
"We believe it is premature to prejudge what will happen with interest rates in 2012," the bank told SETimes.