Interest Rate Policy in the Republic of Macedonia

The interest rate policy is one of the most significant instruments of the monetary policy. The experiences from the developed countries, as well as from the transition economies, show that the optimal interest policy is a essential precondition for dynamization of the economic development. The commercial banks in the Republic of Macedonia are independent in creating their own interest policy. The exceptionally low level of domestic savings and the high and rigid demand for financial assets, the building in of a high risk premium due to the lack of financial discipline and the problems with the legal collection of the claims, as well as the high operative costs of the banks determined the commercial banks’ interest rates to be maintained on a high nominal and real level in the past few years. The continuous efforts for overcoming the unfavorable conditions in the area of the interest policy means improvement of the fundamental economic performances that determine the interest policy, and that is the ratio of the supply and demand of assets, i.e. on national level the ratio of the savings and the investments. But, on a short term, one can undertake certain measures which could have positive influence on the interest policy, without threatening the basic market principles. These measures are: 1) revision of the existing tax policy that has negative influence on the savings; 2) increasing of the interest rate that National Bank is paying to the banks on the basis on allocated assets in the compulsory reserve; 3) creation of high quality internal policies, procedures and standards in the banks concerning approval of loans, more qualitative credit portfolio management and more efficient collection of the claims; 4) strengthening of the supervisory regulations concerning the loan loss provisions; 5) improvement of the efficiency of the legal system and of the instruments for protection and security of the claims (mortgages); 6) decreasing of the premiums paid in the Fund for insurance of the deposits; 7) speeding the activities for creation of the credit register; 8) complete affirmation of the creation of “prima rate”; 9) changing of the foreign exchange regulation concerning the coverage of the foreign exchange savings with liquid foreign exchange assets; and 10) better incentives for attracting inflow of foreign capital as foreign direct investments by foreign investors, that will result in increasing the total supply of capital in the Republic of Macedonia.