Bosnia and Herzegovina: Selected Issues
IMF Staff Country Reports, June 20, 2024
Source details
- Canonical URL
- Bosnia and Herzegovina: Selected Issues
Other formats
Bibliographic details
- Published: June 20, 2024
- Series: IMF Staff Country Reports
- DOI: https://doi.org/10.5089/9798400278853.002
Overview
- The 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.
Key findings
- A 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.
- Compression of local interest rates, combined with few alternative investment opportunities in a limited market, appears to have resulted in households and firms placing most of their funds in short-term deposits.
- The predominance of short-term deposits makes bank funding less stable than under a longer maturity structure.
Implications for financial stability and allocation
- Heavy concentration of funds in short-term deposits increases rollover and liquidity risks for banks relative to a longer maturity funding profile.
- Limited domestic investment opportunities may lead to crowding into the real estate sector, with possible implications for financial stability in the long term.
Analytical focus and context
- Examines interest rate dynamics in BiH relative to global and euro area trends during the recent monetary tightening cycle.
- Emphasizes capital allocation effects both domestically and externally, highlighting money market placements in the euro area as a principal form of outflow.
International Monetary Fund. "Bosnia and Herzegovina: Selected Issues", June 20, 2024.
Content in this bundle
- Bosnia and Herzegovina: Selected Issues; IMF Country Report No. 24/176; May 28, 2024