On March 12 and 13, 2013, a regular meeting of the Operational Monetary Policy Committee was held, at which the Committee members discussed the trends in the international and domestic financial markets in February 2013, the latest data on the domestic economy, including the vulnerability indicators, their deviations from the projections and the banking system liquidity.
On March 12 and 13, 2013, a regular meeting of the Operational Monetary Policy Committee was held, at which the Committee members discussed the trends in the international and domestic financial markets in February 2013, the latest data on the domestic economy, including the vulnerability indicators, their deviations from the projections and the banking system liquidity.
Globally, in February 2013, financial conditions in the euro zone and restoring of confidence in the financial markets continued to improve. Business activity indicators continuously point to an improved market sentiment about the development of the economy, and according to the assessments of the European Central Bank, it is expected that the European economy will gradually recover in the second half of 2013. Such a trend would be contingent upon strengthening of global demand and the gradual recovery of domestic demand. On the other hand, the public and private sectors balance sheets adjustment and the tightening credit conditions could limit the economic growth.
In February 2013, developments in the domestic money markets were stable and were characterized by active trading in deposits, securities and foreign currency. Liquidity in the banking system was maintained on a stable and adequate level, while banks actively used the monetary instruments available and managed the liquidity in a flexible manner. Furthermore, recent changes in the reserve requirement began to contribute to the increased lending to net exporters and companies for the production of electricity, so that in the past two months the banks approved new loans to these sectors in the total amount of approximately Denar 1,100 million.
Recent macroeconomic indicators point to a relatively stable environment for the monetary policy conduct. Inflation data for February 2013 show a further slowdown in inflation, with the annual growth of the price level in the first two months being slightly slower compared to recent projections. Risks regarding the projected inflation rate continue to be assessed as downward. However, the growth dynamics of core inflation is faster than expected, showing probably greater transmission effects than originally estimated. Since the beginning of the year, foreign reserves grew, indicating a favorable balance of payments position. The growth of foreign reserves is supported by government inflows based on foreign borrowing, as well as by the interventions of the NBRM in the foreign exchange market, where the movements are relatively stable. The foreign reserves growth dynamics is in line with the expectations, and they continue to be maintained at adequate levels, being sufficient to absorb any adverse shocks. Preliminary data for the credit market in February show a weak credit activity, signaling the restraint of banks, against the background of inherent risks in the real sector. Available economic activity indicators do not indicate greater improvement of the situation in the real sector, for the time being, either.
The assessment of the existing economic and financial conditions in the economy shows relatively favorable developments from the monetary standpoint. However, the risks in the monetary policy conduct continue to be present. They are related to the core inflation dynamics, but also to the still unfavorable external environment, which could affect the projected path of foreign reserves. In such conditions of inherent risks, and in circumstances where the effects of the already conducted monetary easing are expected, the monetary stance is deemed appropriate.
Considering the latest macroeconomic, financial and market indicators, at the meeting of the Committee it was decided the maximum interest rate on CB bills to be maintained at the level of 3.5%, and to offer CB bills in the amount due (Denar 24,020 million) at the auction. In the forthcoming period, the NBRM will continue to adjust the monetary conditions in line with the developments in the economy and the assessed future risks, in order to maintain low inflation through the exchange rate stability and high confidence in the domestic currency.