Brexit won’t effect the BiH currency

Brexit won’t effect the BiH currency

Sarajevo, June 29, 2016/Independent Balkan News Agency

By Mladen Dragojlovic

Bosnian Convertible Mark (BAM) is still stable despite the predictions that BREXIT will have effect on it and that its value will drop.

BiH Central Bank announced on Wednesday that the stability of the Currency Board as the model of monetary policy in BiH was never in question and the Central Bank of BiH (CBBH) continues its implementation.

“Publishing of the referendum results in Great Britain, where, contrary to the prevailing expectations, the citizens of that country voted the exit from the EU, caused a shock to the financial markets. There was a sharp decline in market values of equity indexes in the financial markets worldwide, the fall in bond yields (rise in bond prices), the rise in price of gold and the depreciation of the British pound and Euro against major world currencies. In fact, as it is usually the case in times of great uncertainty and turbulence, there is flight to quality – investors are expressing an aversion to the increased risk and there is an increased demand for safe assets, such as the best quality government bonds, gold and safe world currencies. Great Britain’s voting the exit from the EU also brought a great political uncertainty in Europe, which potentially can have further negative effects on the financial markets”, CBBH announced.

In the announcement, CBBH said that, from a macroeconomic point of view, BiH could suffer some negative effects arising from Brexit to the extent that all the a.m. turbulences lead to a slowdown of the economic growth in the euro area. Bearing in mind that Great Britain cannot be categorized as major trade partners of BiH, it is not expected to have here more significant direct negative impacts arising from the fall in economic activity in it.

Given the fact that the foreign exchange market recorded depreciation of the euro, especially, against the dollar, while keeping in mind the fixed ratio of the domestic currency against euro in the Currency Board arrangement, these trends may affect the depreciation of the nominal, and the real effective exchange rate of the convertible mark, which, in terms of domestic economy competitiveness in the world market is a positive fact, by itself.

“Except in an extreme scenario, we do not expect to have significant outside pressure on rise of inflation in the country, considering still strong influence of low food and energy supplies prices and the low level of inflation in the euro area. Moreover, the strengthening of the dollar contributes to the reduction in the naphtha prices, which to a certain extent, has even happen after the publication of news on Brexit”, announced the CBBH.

BiH state Bank in summary said that Currency Board do not expect stronger direct effects on economic and financial developments in BiH. To the extent that political uncertainty and European financial markets uncertainty are reflected in the slowdown of economic growth in the euro area, this development may have certain negative effects on economic developments in the country. The current political uncertainty in Europe and instabilities in financial markets, emphasized CBBH, with the potentials to have a negative macroeconomic effects on the European/global economy, do not contribute to the environment for acceleration of economic growth in the country.