The recent macroeconomic and market indicators, in the context of their effects on the monetary policy setup, were discussed at the meeting of the Operational Monetary Policy Committee.
Press release of the NBRM
The recent macroeconomic and market indicators, in the context of their effects on the monetary policy setup, were discussed at the meeting of the Operational Monetary Policy Committee.
On the international financial markets, the market participants were focused on the events related to the U.S. fiscal policy also in October, where last minute temporary political consensus on the budget for next fiscal year and the public debt ceiling was achieved. In the Eurozone, in conditions of fall in inflation from 1.1% to 0.7%, the ECB passed a decision on reducing the interest rate on both the refinancing operations, from 0.50% to 0.25% and on overnight loans, from 1% to 0.75%.
The latest macroeconomic projections have also been discussed at the session, and it was agreed that they do not indicate major changes having in mind the environment for monetary policy conduct. The performances in the real sector in the first half of the year were better than expected, which together with the retained assumptions for further growth support through foreign and public investments result in assessments for higher economic growth for 2013. The estimations continue to indicate possibilities for further growth intensification in 2014 and 2015, in conditions of better global environment, larger use of foreign export facilities' capacities, fiscal incentives on investments and a gradual recovery of the consumption. Despite the recovery of the economy, it is not going to not cause greater pressure by speeding-up the inflation and deteriorating the external position. The inflation prospects for 2013 are unchanged compared to April, with further slowdown in the inflation in the next two years being expected, in the absence of import price shocks present until now. The projections for the external sector indicate smaller current account deficit than expected in the April projections, given lower import pressures and improved export performances. From the aspect of the dynamics in the next two years, further increase in the current account deficit is expected, partially due to the import pressures of the investments. However, the projections indicate sufficient capital inflows to finance the deficit and increase the foreign reserves. The estimated indicators of reserves adequacy indicate a level of foreign reserves in the following period that is sufficient to deal with potential, unforeseen shocks. In 2013, the credit support to the economy is just smaller than expected, in conditions of still present bank reticence on lending, given evident risks in the corporate sector and conservative strategies of major banking groups present in the Macedonian banking system. However, in the following two years, acceleration in credit growth is expected, given the assumptions of solid deposit growth, improvement of the credit demand quality and the banks' risk perceptions.
Generally, the new NBRM projections suggest maintenance of similar macroeconomic situation as it was in April, given a balance of payments position that provides growth and further maintenance of reserves at adequate level. The risks to the basic macroeconomic scenario are similar to those of the April projections cycle. Having in mind that the global recovery is still uncertain, there are risks to the external position of the economy, which can spread out through several points. Moreover, the core inflation remains relatively high, indicating the need for greater prudence. These risks require constant monitoring of possible changes in the external and domestic economic conditions in the forthcoming period and taking appropriate measures on time.
The liquidity of the Macedonian banking system remained stable also in October. On the domestic money markets, the interbank trade of deposits registered an increase, while the movements on the foreign exchange market were influenced by the usual seasonal factors. The foreign currency positions of the banks maintained relatively stable, and the National Bank continued to intervene on the foreign exchange market by buying foreign currency. To overcome the liquidity fluctuations, the banks were actively using the monetary instruments.
Taking into account the latest macroeconomic, financial and market indicators, at the session of the Operational Monetary Policy Committee it was decided to maintain the current monetary setup, after the changes with the reserve requirements were effectuated in September, aimed at encouraging bank lending. At the session of the Committee, it was decided to keep the interest rate on CB bills at level of 3.25 %, while bid the CB bills up to the amount that is going due (25,500 million ) on the auction.
The NBRM will continue to closely monitor the future macroeconomic developments and the possible materialization of risks and accordingly, adjust the monetary policy.