Montenegro is a small and very open economy and, in that context, it wouldn’t be very real to talk about its resistance to negative economic movements in the EU and in the region. But what we can do in given circumstances in order to improve local immunity is strengthen financial stability and sustainability. In the domain of financial stability, Central BANK OF Montenegro is taking all the available measures to provide full resistance of the banking system, said in the interview for Dnevne novine Vice-Governor of the Central Bank, Mr Miodrag Radonjić.
If partial trade deal between the US and China is reached, how will it impact global economy?
Mr Radonjić: Partial deal, i.e.the first phase of China-US trade deal, was agreed on 13 December last year and it will become official when the deal is signed. Preliminary agreement stipulates that there won’t be any new packages of customs tariffs, but the future of economic relations between the states remains uncertain. According to the estimates of economic analysts, reduction in additional tariffs will have a positive impact on global economic growth by 0,3% of global GDP.
The real effect of the deal will mostly depend on its positive implementation.
Some economic analysts forecast new economic crisis and economic growth slowdown. What do the indicators you follow show? What are the symptoms of the next crisis?
Mr Radonjić: One of the most striking characteristics of all capitalist economic systems is growth through cyclical shifting between expansion phase and contraction phase, which can sometimes last longer than a decade. Most renowned world institutions announce the contraction phase, which is characterized by reduction in the aggregate economic activity. Whether it will finish with the new economic crisis is impossible to predict. Potential recession is the next aspect – even if it occurs, it wouldn’t be homogeneous but states would be affected differently.
In such heated international environment, partial deal is encouraging and leaves space to believe that more comprehensive deal is approaching.
How resistant is Montenegro to the possible crisis? How economic growth slowdown could affect our economy and financial stability? What protection mechanisms are at your disposal?
Mr Radonjić: Montenegro is a small and very open economy and, in that context, it wouldn’t be very real to talk about its resistance to negative economic movements in the EU and in the region. But what we can do in given circumstances in order to improve local immunity is strengthen financial stability and sustainability. In the domain of financial stability, Central bank of Montenegro is taking all the available measures to provide full resistance of the banking system; maintaining high solvency of the banking system (17,71%), high liquidity of the banking system which is now €1,1 billion…
Central Bank conducts the policy of international reserves management. What is in the focus?
Mr Radonjić: International reserves management is one of the fundamental functions of the Central Bank and it is primarily guided by the principles of security and liquidity. Focus on these two principles id a logical choice for the Central Bank ad institutional investor, considering its role as stabilizer in the financial system. International reserves represent the most important pillar of security of a financial system in situations where circumstances on the financial market could get worse. For that reason, access to international reserves management is risk-oriented and aimed at finding adequate risks/profit ration.
It has been said recently that focus of the CB’s activities will be on strengthening supervisory function. What activities do you plan to undertake in that domain? What does the implementation of AQR encompass?
Mr Radonjić: AQR stands for Asset Quality Review. That’s a prudential instrument of assessing the quality of banks’ assets with the assistance of world renowned audit agencies. That definitely is the most important project for this year, which will give us the most objective answer to the question: what is the health of the banking system in Montenegro like?
According to the latest data provided by the World Gold Council, gold demand increased by 42%. What is the background of the increase?
Mr Radonjić: Price of golf has been on an upward trend for the last five years. Many central banks opt for the increase in gold reserves for many reasons. Geo-political trends might be the strongest reason of all. Russia and China have considerably increased their gold reserves since 2008 until today. Turkey is also recording surge in gold reserves, and India as well.
Relating monetary policy to gold in crisis is not recognized as problem by big central banks, but rather as a solution.
What are Montenegrin gold reserves like? Does CB plan to increase national gold reserves?
Mr Radonjić: Currently, Central Bank hasn’t got any gold reserves. We use EUR but we aren’t full-fledged Eurozone member and, therefore, we can’t have an impact on the monetary policy conserving that currency. In our case, risk of strong fluctuation in gold value could prevail over the stabilizing effect. Gold as one of the investment options, is always subject to consideration within the analyses that precede the creation of the investment policy.
What’s the price of gold in the world and what does gold market tell us when it comes to global economy?
Mr Radonjić: According to Bloomberg, the highest gold price per ounce was in 2011, reaching $1.900,22 per ounce. At the beginning of this century, gold price was at $280 per ounce. Now it’s at the level of $1.474 per ounce. So, changes in prices are very sharp. Gold price can be a consequence but not a cause of global trends. In the current situation, most indicators show that geo-political factors have an impact on the price of gold.
