Brexit threatens the Financial Stability of BiH?

KMLeaving of UK from the European Union currently does not have any direct effect on the financial stability of BiH, particularly on the stability of the banking sector. The stability of the currency board, as a model of monetary policy in BiH, has never been questioned and the Central Bank of BiH (CBBiH) is continuing with its implementation, as announced from the CBBiH.

From a macroeconomic point of view, BiH might experience some negative effects from Brexit to the extent that all of these turbulences lead to slower economic growth in the euro area. Considering that the United Kingdom cannot be categorized as the major foreign trade partner of our country, it is not expected that this has a significant direct negative impact on the basis of the fall in economic activity in BiH.

Given the fact that the foreign exchange market recorded depreciation of EUR, particularly against USD, while having in mind the fixed ratio of the domestic currency against EUR in the arrangement of currency board, these trends may affect the depreciation of the nominal as well as the real effective exchange rate of BAM which, in the context of competitiveness of the domestic economy in the world market, represents a positive fact itself.

Except in some kind of extreme scenario, significant pressure from the outside is not expected on inflation in our country, given the still strong influence of low food and fuel prices and the low level of inflation in the eurozone. Moreover, the strengthening of USD contributes to the reduction of oil prices, which also happened in certain extent after the publication of news about Brexit.

To conclude, stronger direct effects on the economic and financial developments in BiH are not expected at this point. To the extent that the political uncertainties on the European financial markets are reflected on the slowdown of economic growth in the euro area, these developments can have certain negative effects on economic activity in our country. The current political uncertainty in Europe and the instability of financial markets, with the potential to have a negative macro-economic effects on the European / global economy, does not contribute to the atmosphere of acceleration of economic growth in our country.



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