On 9 April, 2013, a regular meeting of the Operational Monetary Policy Committee was held, reviewing data on the banking sector as at February 2013, the movements of international and domestic financial markets in March 2013, the recent macroeconomic data on the domestic economy and liquidity in the banking system.
Press release of the NBRM
On 9 April, 2013, a regular meeting of the Operational Monetary Policy Committee was held, reviewing data on the banking sector as at February 2013, the movements of international and domestic financial markets in March 2013, the recent macroeconomic data on the domestic economy and liquidity in the banking system.
At the global level, in March, the uncertainty regarding the situation in the euro area increased. Actual data from the beginning of the year do not provide an accurate picture of the economic activity in the euro area. The financial crisis in Cyprus and the manner of its resolution again raised questions about the ability of policy makers in the euro area to quickly and effectively deal with problems within the monetary union.
Liquidity in the banking system in the country is maintained at relatively high and stable level, where the banks actively use monetary instruments. The domestic money market still registers trade in deposits of longer maturities (up to 3 months) and trade in securities, which indicates relatively high confidence among market participants. The foreign exchange market experienced the common seasonal trends in supply of and demand for foreign currency.
The economic and financial conditions in the domestic economy, as well as the sources of risks to monetary policy have not significantly changed in comparison with the last CB bill auction. The trend of relatively favorable movements in inflation and foreign reserves continue. Data on inflation for March show further slowdown of the rise of consumer prices, with the inflation ranging below the projected level during the quarter. These trends indicate a continuing mitigation of inflation risks, given the lower pressures from import prices. Changes in foreign reserves since the beginning of the year are positive and as projected. The adequacy ratios point to a comfortable level of foreign reserves, sufficient to offset any adverse shocks. Indicators of economic activity for the past year have shown slightly less favorable situation in the real sector than estimated. Indicators of activity in the first quarter are positive and send signals for more favorable movements in relation to the previous quarter, which is in line with projections. However, it is expected that this recovery will not be strong enough to close the negative output gap and to create greater imbalances in the economy. The slow recovery of the real sector transmits to the banks' credit market. Despite the solid and steady growth of deposit potential, the lending activity remains moderate. The utilization of the deposit base for lending has been reducing, given the pronounced preference for investing in low-risk liquid assets, leading to a further increase of the liquidity of banks. These movements show that banks refrain from taking greater risks in conditions of uncertain environment.
Despite the favorable trends observed from monetary aspect, certain risks to monetary policy still persist. Notwithstanding lower inflation risks, observed through the overall inflation, the core inflation remains high and points to possible higher transmission effects of the higher food and energy prices on other prices in the economy. Also, in the last period, the uncertainty surrounding the euro area resurged, which implies possible deterioration of the external environment and highlighting the risks to the external position of the economy.
Taking into account the latest market, macroeconomic and financial indicators, at the meeting, the Committee decided the maximum interest rate on CB bills to remain 3.5%, and the CB bills offered at the auction to be at the level of due amount (Denar 24,020 million). The NBRM will continue to closely monitor the future macroeconomic developments and the possible materialization of risks. If risks remain under control and if favorable trends of key indicators continue, the monetary policy will be adjusted accordingly.