At the regular session held on 11 March 2014, the NBRM's Operational Monetary Policy Committee reviewed the recent macroeconomic indicators for the domestic economy, the banking system data as of January 2014, and the developments on international and domestic financial markets in the light of their impact on the monetary policy setup
At the regular session held on 11 March 2014, the NBRM's Operational Monetary Policy Committee reviewed the recent macroeconomic indicators for the domestic economy, the banking system data as of January 2014, and the developments on international and domestic financial markets in the light of their impact on the monetary policy setup.
During February, the international financial market developments were under the influence of the positive macroeconomic indicators for the economic activity in the euro area in the last quarter of 2013 and the expectations for further growth in 2014. In the United States, the economic indicators as of the beginning of the year indicate certain impact of the adverse weather conditions, but the economic activity is expected to further strengthen. In early March, geopolitical tensions in Ukraine have created uncertainty in the financial markets, thus increasing the prices of safe heaven assets.
High frequency indicators for the last quarter show that the economy will continue to grow, probably at a pace similar to the one in the third quarter. These assessments are largely based on the continuing favorable trends in key economic sectors, primarily construction and industry. The assessments further show that the economic growth will not be strong enough to cause major imbalances in the economy. The new inflation data as of the beginning of the year still indicate lower inflationary pressures. In February, consumer prices fell by 0.1% on a monthly basis, leading to a further slowdown in the annual rate of inflation (0.6% annually). These performances have confirmed the previous assessments for mostly downward risks associated with the inflation projection of 2.3% for 2014.
On the domestic financial markets, in February, the banks' liquidity remained stable. While creating liquid assets under the influence of autonomous factors, banks expressed growing interest to place their excess liquidity in short-term deposits with the National Bank. In such circumstances, the turnover on the interbank deposit market was relatively lower than usual, mostly registering interbank transactions with maturities above one day.
According to the preliminary credit flow data, the monthly growth of loans continued in February, and the loans were approved to the corporate and household sectors. Lending dynamics is faster than expected in the October projection. However, there are still downward risks to the credit growth to the end of the year associated with the banks' perceptions of the profile of demand risk, the conservative strategy of large banking groups operating in the domestic market through their branch banks and the further improvement of the quality of loan portfolio. February data indicate favorable movements in the banks' deposit potential, which is still growing, but at a faster pace, on a monthly basis. The growth is a result of the increase in deposits of the two sectors, primarily the household sector (contribution of 80% to the monthly growth).
The foreign exchange market registered normal seasonal trends, with the foreign exchange positions of banks still being relatively stable. Foreign reserves data for February 2014 indicate a seasonal decrease, as expected within the projections of the balance of payments. The indicators for reserves adequacy are still in the safe zone, suggesting that the foreign reserves will be sufficient to cope with contingent shocks.
Risk analysis shows that there are still risks associated with the external environment. These risks have further strengthened in this period, due to the upheavals in Ukraine and have created risks of instability of global prices of energy and grain products, and could also have an impact on the expected economic recovery.
Taking into account the latest macroeconomic, financial and market indicators, the Operational Monetary Policy Committee also decided to preserve the current monetary setup and to offer CB bills at the auction in the amount that falls due (Denar 25,500 million) and at unchanged interest rate of 3.25%.
The National Bank will continue to closely monitor the future macroeconomic developments and the possible materialization of risks and will adjust monetary policy accordingly.
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