On 14 May, 2013, the Operational Monetary Policy Committee held a regular meeting, discussing data on the banking sector as of March 2013, the movements on international and domestic financial markets in April 2013, the results of MAKPAM model and the banking system liquidity.
On 14 May, 2013, the Operational Monetary Policy Committee held a regular meeting, discussing data on the banking sector as of March 2013, the movements on international and domestic financial markets in April 2013, the results of MAKPAM model and the banking system liquidity.
As of March, the banking sector still maintained the trend of high liquidity. Analyzing the lending activity, annual changes point to slower corporate lending, while household loans registered a moderately faster increase. Deposit base is maintained at a stable level, with the uptrend of Denar savings still being faster compared to foreign currency savings.
Recent economic activity data in the euro area come to the conclusion that the recession could continue in the second quarter of 2013, and the recovery prospects of the European economy in the second half of the year are still uncertain. In such circumstances, and given the expectations of low price pressures in a medium run, the ECB, at its regular meeting in early May, decided to take measures to further loosen monetary policy by lowering interest rates.
Liquidity in the banking system in the country continues to be maintained at a relatively high and stable level, with banks actively using monetary instruments. There is still relatively high confidence among market participants in domestic markets, continuing the trend of trading in longer maturity deposits (up to 3 months) and a moderate increase of securities trading. In the foreign exchange market, movements are influenced by the usual seasonal factors, with increasing number of transactions in the interbank foreign exchange market.
At the meeting, the Committee reviewed the recent macroeconomic projections and the latest macroeconomic indicators in the context of their effects on the monetary policy setup. It was ascertained that the new macroeconomic scenario does not differ significantly from the previous projections. In the first quarter, activity indicators and perceptions for the growth factors in the coming period contributed to the maintenance of current perceptions for economic growth. It is still expected that the recovery will not be significant enough to cause major pressures in the economy through the demand channel. The inflation outlook for 2013 changed downwards in conditions of lower than expected inflation and expectations for lower pressures from import prices. Despite the declining foreign reserves in the recent period, which is usual seasonal movement, the projections for external position of the economy still suggest a room for their increase by the year-end. Estimated reserve adequacy ratios indicate a level of foreign reserves which will be sufficient to deal with any unforeseen shocks in the future. When the monetary growth dynamics and the assumptions for economic growth are as expected, the previous projections for faster credit growth by the year-end still apply. However, given the uncertain environment, despite the financial assets available for lending, the banks' risk perceptions play a significant role in determining the volume of new lending. Hence, this credit growth projection is associated with downward risks, depending on the expectations and confidence of stakeholders in the economy. Therefore, in the period ahead, the NBRM will assess the need to take additional measures to stimulate credit growth.
Generally speaking, the new NBRM projections suggest a similar macroeconomic picture as in the January cycle, expecting a slow economic recovery and balance of payments position which ensures adequate level of foreign reserves. Significant change is that these projections expect slightly weaker inflationary pressures, compared to January perceptions. The risks clouding such macroeconomic scenario are still mainly external and attributed to the possible changes in the pace of recovery of global economic growth. The materialization of these risks may have adverse effects on the path of foreign reserves through several points in the balance of payments. Furthermore, despite the lower inflation pressures, the core inflation remains relatively high. With these macroeconomic conditions and risk assessments, and given the monetary loosening at the beginning of the year which transmits to the financial sector with a certain time lag, the current monetary position is regarded as appropriate.
Taking into account the latest macroeconomic and financial indicators, at the meeting, the Committee set the policy rate at 3.5%, and the CB bills offered at the auction to be in the due amount (Denar 24,020 million). Thus, the monetary policy, by maintaining low interest rates and taking reserve requirement measures, creates a space for more active lending to the private sector. In the future, the National Bank will closely monitor the credit market developments and if necessary, make appropriate changes in order to foster significant credit support to legal entities.