On 13 January 2015, the NBRM's Operational Monetary Policy Committee held its regular meeting and discussed the situation in the Macedonian economy and the countries in the region, the developments on the international and domestic financial markets and the latest macroeconomic indicators in the light of the monetary policy setup
Press release of the NBRM
On 13 January 2015, the NBRM's Operational Monetary Policy Committee held its regular meeting and discussed the situation in the Macedonian economy and the countries in the region, the developments on the international and domestic financial markets and the latest macroeconomic indicators in the light of the monetary policy setup.
The assessment of the economic and financial conditions showed that the current monetary policy setup is adequate and it was decided the CB bills offered at the auction to be in the amount that falls due (Denar 25,500 million), at an unchanged interest rate of 3.25%.
The economy has still been recovering at a solid pace, in part supported by the lending of the domestic banks. Economic recovery takes place in the absence of price pressures. These developments indicate that there is a suitable environment for a sustained recovery of the private sector, and it was again assessed that the current support of the local economy through the monetary policy measures is sufficient. Leaving the zone of accommodative monetary policy in the period ahead will depend on the changes in the external position of the economy and the effects on foreign reserves.
The macroeconomic indicators do not point to major changes in the monetary policy setup. In terms of the economic activity, the published data on GDP for the third quarter indicated somewhat faster economic growth than anticipated. Analyzed by sector, the growth is dispersed, and in terms of the demand, the growth structure in this quarter is slightly more favorable than expected. The impetus from investments is stronger than expected, at the expense of the weaker effect of private consumption.
High frequency data for the last quarter of 2014 point to further growth of the domestic economy, at probably a similar pace as in the previous quarter. The continuation of the economic growth in the last quarter is evident in most of the indicators by sector, with the exception of construction, which given the high comparison base still registers an annual decline.
The latest data on inflation in December 2014 point to an unchanged level of prices compared to the previous month. On annual and cumulative basis, inflation is negative, and equals 0.5% and 0.3%, respectively. The average annual price decline in 2014 was mainly due to the lower prices in the food component and energy prices. The last quarter is characterized by a gradual depletion of the negative contribution of food prices, while the negative effect of energy prices has become more pronounced, which corresponds to the sharp decline in oil prices in the world market. Amid second-round effects of the fall in the prices of food and energy, downward movements were registered also in the core inflation. Core inflation has been in the zone of negative annual changes for the fourth month in a row, although on average for the whole of 2014, it remains in the positive zone and equals 0.6%. Recent performances for 2014 pointed to an inflation rate which is in line with the expectations in the October projections. Regarding the external assumptions, estimates for the world oil prices have been adjusted downward, while the adjustments in food prices are in the opposite direction. Given the changes in the expectations regarding oil prices, currently there are downward risks to the projected inflation for 2015. However, one should bear in mind that there is great uncertainty about the future movements in world oil prices and the possibility of sudden changes in this category.
After the high accumulation of foreign reserves in the third quarter, largely due to the government external borrowing, in the last quarter, foreign reserves were almost unchanged. The movements in the foreign exchange market were favorable, and in December a high amount of foreign currency was purchased. Changes in foreign reserves are somewhat more favorable than expected, with the available data on the external sector pointing to the current account as a possible reason for such more favorable trends. Foreign reserves adequacy indicators further indicate a level of foreign reserves sufficient to cope with possible, unforeseen shocks. However, given the increased uncertainty and still unfavorable external environment, there are still risks regarding the future movement of reserves.
Preliminary data on the credit market in December point to further acceleration of the credit growth on a monthly basis. As in November, most of the new lending was again directed to the corporate sector, with the loans to companies accounting for 87% of the growth in total loans. Thus, the annual growth rate of total loans in December is 10%, which is above the projection. Regarding the deposit potential, in December the monthly growth dynamics accelerated significantly (equally supported by the growth of both household and corporate deposits), with the deposits also exceeding the October projection for the last quarter. Developments in the credit market signal more stable expectations and knock-on effects of the monetary loosening on lending.
Liquidity of banks grew under the influence of autonomous factors, wherefore banks maintained their relatively high interest in the standing deposit facility with the National Bank. Against the backdrop of a relatively high liquidity on the money markets, market participants reduced trading on both the unsecured market segment and on the secondary securities market. Developments on the foreign exchange market were relatively favorable, reflecting the seasonally increased supply, amid simultaneous moderate decline in the demand for foreign currency. In such circumstances, the National Bank intervened by purchasing foreign currency from the market makers.
Internationally, in December market participants increased their expectations for start of the quantitative easing by the ECB, amid further indications of slow growth in the euro zone and inflation entering in the negative zone. In such circumstances, a downward trend in the value of the euro against the US dollar was registered. Also, the markets in the euro zone are characterized by moderate instability affected by the increased political risks for Greece, related to the parliamentary elections scheduled for late January.
Generally, the latest NBRM's assessments do not point to major changes in the environment for conducting monetary policy. Foreign reserves adequacy indicators are expected to remain in the safe zone. There are no price pressures, the economic growth is solid, and the credit market movements suggest positive developments in this market.
Under such favorable economic conditions, in the period ahead, the NBRM will be mainly focused on monitoring the realization of the projected movement of foreign reserves and foreign exchange market developments and will adjust the monetary policy accordingly. As before, the risks to the baseline macroeconomic scenario are mainly of external nature and are associated with possible changes in the pace of recovery of the global economic growth and the volatile and uncertain dynamics of the world food and energy prices, which has been rather pronounced lately.
The NBRM will continue to monitor closely the future macroeconomic developments and the possible materialization of risks and will adjust the monetary policy accordingly.