Bulgarian National Bank (BNB) Governor Dimitar Radev downplayed concerns that adopting the euro would lead to a meaningful or lasting rise in inflation. He emphasized that any price increases would be minor and temporary, noting that Bulgarian and eurozone interest rates were already near neutral levels.
Annual inflation hit 4% in March, driven by adjustments in regulated prices and the expiration of pandemic-era measures. However, it eased to 2.8% in April – close to the European Central Bank’s (ECB) target – even as interest rates declined. The BNB has since cut its key rate to 2.07%, while Eurostat’s May projections estimate Bulgaria’s average 2024 inflation at 3.6%.
Radev stated that inflation trends for late 2025 and 2026 would largely depend on global price movements and domestic cost pressures tied to Bulgaria’s economic convergence with the eurozone. Given the country’s advanced real convergence, he sees little risk of major inflation divergences from the bloc.
He echoed ECB assessments that eurozone short-term rates were now close to neutral – a scenario that also applied to Bulgaria. While real rates dipped below natural levels during the recent inflation surge, this gap has since narrowed, with alignment achieved as of mid-2024.
The BNB will assist the government in monitoring prices during the dual-currency transition period. However, Radev pointed to Eurostat data and other eurozone members’ experiences, suggesting the euro’s inflationary impact is typically negligible and brief.
Croatia’s 2023 euro adoption coincided with severe supply shocks and aggressive monetary tightening, whereas Bulgaria faces heightened geopolitical risks. Still, Radev expects a smooth transition, citing Bulgaria’s thorough preparation and the clarity of the process.
Bulgaria enters the eurozone with robust macroeconomic stability – low public debt, a resilient banking sector and an economy that withstood recent global turbulence. Radev expressed confidence in domestic policies’ ability to handle potential shocks, dismissing any need to rely on ECB intervention.
He also brushed off claims that ditching the lev was unpopular, attributing public skepticism to political opportunism rather than widespread opposition.
“Such concerns are often exaggerated for short-term gains,” he said, adding that anti-euro voices lacked majority support in parliament.
High banking sector liquidity means reducing reserve requirements from 12% to 1% should have minimal inflationary effects, Radev noted. Full alignment with ECB monetary policy will also improve policy transmission within Bulgaria, further stabilizing conditions.
With the ECB approving Bulgaria’s euro entry for January 2026, Radev’s remarks aim to reassure both markets and the public that the shift will be manageable, with inflation remaining under control. (Novinite)