On August 13, 2013 a regular meeting of the Operational Monetary Policy Committee was held, where recent developments in the international financial markets, the data on the banking sector as of June 2013, liquidity in the banking system and the movements on domestic financial markets in July 2013, as well as the latest macroeconomic indicators were discussed.
Press release of the NBRM
On August 13, 2013 a regular meeting of the Operational Monetary Policy Committee was held, where recent developments in the international financial markets, the data on the banking sector as of June 2013, liquidity in the banking system and the movements on domestic financial markets in July 2013, as well as the latest macroeconomic indicators were discussed.
In July, macroeconomic data and business confidence indicators for the euro zone suggest that in the second quarter the economic activity registered growth, which may continue in the second half of 2013. However, according to estimates by the European Central Bank, there are still risks to the economic activity, primarily due to the possibility of lower domestic and global demand and the slow implementation of structural reforms in the member states of the euro zone. In the USA, the macroeconomic indicators point to sustained economic growth in the future, so that by the end of 2013, Federal Reserves are expected to begin with the exit strategy for gradual normalization of the monetary conditions by reducing the monthly purchase of government and mortgage securities. The latest developments in the Macedonian economy do not point to major changes in the environment for conducting the monetary policy, compared with the previously estimated. In terms of individual indicators, after the acceleration of inflation in June, during July consumer prices declined on a monthly basis and the annual price growth slowed. Inflation continues to move in the projected frame and recent estimates show balanced risks regarding the projected average inflation of 2.8% for 2013. Recent economic activity indicators suggest that it would be retained in the zone of ??positive changes also in the second quarter, amid further, however slower growth in industrial and construction activity. It is further expected that the recovery will not be strong enough to cause major imbalances in the economy. In July, normal seasonal increase in the supply of foreign currency was registered on the foreign exchange market. Against the background of an increased supply of foreign exchange and improved foreign exchange positions of the banking system, the National Bank intervened by purchasing foreign currency. Reserves adequacy indicators still point to a level of foreign reserves sufficient to deal with potential, unforeseen shocks. According to the preliminary data on the credit market for July, the credit flows were positive also during this month, amid further greater orientation of banks to the household sector. The data on credit flows indicate a possible realization of the planned pace of lending. In the first six months of 2013, the amount of newly granted loans by the banks to the net-exporters sector and to domestic producers of electricity reached Denar 3,588 million, with the new loans for the most part (99%) being directed to the net-exporters sector. The growth of new loans to these sectors allows a reduction of the basis for the reserve requirement for banks, thus creating room for further increases in the credit support for the private sector. However, despite these achievements, the downward risks to the projection for the loans are still present and there still are risk perceptions. Deposits in the banking system grew also in July, but at a slower pace than expected. The liquidity of the banking system in the Republic of Macedonia in July declined, affected by autonomous factors, which was influenced primarily by the seasonal growth of currency in circulation. Banks actively used the monetary instruments to overcome the liquidity fluctuations, and the movements in domestic financial markets were stable. The money market registered an increase in the interbank activity and trading in longer maturities, and growth was also observed in the trading on the secondary market. Increased trading activity indicates that the high level of trust among market participants is retained. Despite the relatively favorable movements, observed from a monetary point of view, risks for the monetary policy still exist. This especially applies to the external environment, which remains negative and creates risks for the external position of the economy. Also, although it is estimated that overall inflation will remain within the projection and within acceptable parameters, core inflation remains relatively high, indicating the presence of second-round effects. Under these conditions of stable movements, but present risks, and taking into account the expected effects of the monetary easing done in July, at the session of the Operational Monetary Policy Committee it was decided to keep the interest rate on CB bills at the level of 3.25% and at the auction to offer CB bills at the level of the due amount (Denar 25,500 million). The National Bank will continue to closely monitor the future macroeconomic developments and the possible materialization of risks, and will accordingly adjust the monetary policy.