Bosnia and Herzegovina: Selected Issues

International Monetary Fund

No 2024/176, IMF Staff Country Reports from International Monetary Fund

Abstract: This Selected Issues paper provides an overview of interest rate dynamics in Bosnia and Herzegovina (BiH) in relation to global and euro area trends following the recent cycle of monetary tightening. It analyzes the impact of interest rate dynamics on capital allocation both domestically and externally, with a focus on capital outflows. It concludes that the wider spread between domestic interest rates and euro area short-term rates has been associated with capital outflows of around KM 1.7 billion since the European Central Bank started tightening monetary policy in July 2022, mostly in the form of money market placements in the euro area. It also shows that the compression of local interest rates and the few alternative investment opportunities in a limited market appear to have resulted in households and firms placing most of their funds in short-term deposits, making bank funding less stable than under a longer maturity structure. It notes that this lack of investment opportunities may lead to crowding into the real estate sector, with possible implications for financial stability in the long term.

Keywords: A. labor market market trend; lending interest rate dynamics; interest rate differential; BiH labor market indicator; wage development; capital allocation; Employment; Labor markets; Wage adjustments; Wages; Global; Europe (search for similar items in EconPapers)
Pages: 35
Date: 2024-06-20
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