The recent macroeconomic and market indicators from the international environment and domestic economy, in the context of their effects on the monetary policy setup, were discussed at the regular meeting of the Operational Monetary Policy Committee held on February 11, 2014
The recent macroeconomic and market indicators from the international environment and domestic economy, in the context of their effects on the monetary policy setup, were discussed at the regular meeting of the Operational Monetary Policy Committee held on February 11,2014.
Earlier this year, the performances in the U.S. and the euro area indicate recovered economic activity in both regions, with the expected pace. The indicators for the U.S. economy infuse optimism, thus expecting accelerated economic growth in 2014. The indicators for the economic expectations in the euro area indicate moderate growth at the beginning of the first quarter of 2014, but the unfavorable trends in the monetary indicators and inflation increase the pressure for taking additional measures for monetary relaxation. However, at the beginning of February, no decision on decreasing key interest rate of the ECB was passed.
On the domestic financial markets, in January, the bank liquidity, influenced by autonomous factors, remained stable, with the banks using the monetary instruments to overcome the short-term liquidity fluctuations. At the same time, the interbank deposit market registered intensified activity, especially on a longer run, indicating favorable trends in this segment of the financial markets. January data indicate favorable movements with the banks' deposit potential, as well, which continues to raise, although slower, on a monthly basis, which is common for this time of year and matches expectations in the October projection. According to preliminary data on credit flows, monthly credit growth is generated in January, fully directed towards the "household" sector. The realized credit activity is consistent with the expectations in the October projection, with the bank short-term perceptions for the lending terms and the future credit demand in the next quarter, provided in the latest Lending Survey, being favorable as well. However, there area still downward risks to the credit growth.
The high frequency indicators for the last quarter show that the economy will continue to boost, probably with similar intensity as in the third quarter. Such estimations are largely based on further favorable movements in key economic sectors, primarily in construction and industrial sectors. The estimations further show that the economic growth will not be strong enough to cause major imbalance in the economy. Since there are no new data on inflation from the beginning of the year, it is still indicated that there area mainly downward risks related to the inflation forecast for 2014 of 2.3 % set in the January review of the current situation. These estimations reflect the lower realized inflation rate at the end of 2013, compared to the projected one and the January revisions to the world prices of food and oil.
The data on the foreign reserves in January 2014 suggest their seasonal decrease, which was expected within the projections of the balance of payments. The indicators of adequacy of reserves remain in the safe zone, i.e. they point that the amount of the foreign reserves is sufficient to cope with possible unforeseen shocks.
In terms of stable movements, but when there are still risks associated with the external environment, and especially taking into account the expected effects of the measures that the National Bank have undertaken previously, the Committee concluded that the current setting of monetary policy is appropriate.
Taking into account the latest economic, financial and market indicators, at the session of the Operational Monetary Policy Committee it was decided to auction CB bills at level of the amount that falls due (Denar 25,500 million), with unchanged interest rate at 3.25%. Also, in addition to the recently adopted Methodology for determining the potential demand for CB bills, the Committee revised the interest rate on seven day deposit facility, making it closer to the interest rate on overnight deposit facility. In this manner, the role of these instruments, which serve only to balance the short-term liquidity fluctuations, and also strengthen the mechanism for further steering of the bank's excess liquid assets in long-term investments, is emphasized.