The NBRM Council, at its ninth session held today, has discussed the latest macroeconomic developments.
Skopje, 15 September 2011
Press release of the NBRM
The NBRM Council, at its ninth session held today, has discussed the latest macroeconomic developments.
August 2011 is the fourth consecutive month of decrease of the general price level in the economy. The annual inflation rate kept on slowing down and equaled 3.6% in August, persisting below the annual growth projected for the third quarter of the year. The average annual inflation rate equaled 4.2% for the January-August 2011 period, and the core inflation rate still persists at 1.1%.
According to the latest industrial output data, the higher output of metals, oil derivatives and beverages made outstanding contribution to the monthly growth of the output in July (8.6%). On annual basis, the volume of industrial output went up by 5.5% (decrease of 1.8% in June), driven by the growth of electrical equipment and tobacco output, given the energy output recovery, the negative contribution of which made in July is substantially lower compared to June. In the first seven months of 2011, the industrial output continued recognizing high annual growth rate of 8.6%, on average.
According to the latest balance of payments data, in the second quarter of 2011, the current account deficit stood at Euro 49.2 million, or 0.6% of GDP which is a slight annual reduction of 0.1 percentage point of GDP. Such shrinkage in the current account is due to the improved performances of almost all current account components (improved goods and services trade balance and lower income deficit), except for the current transfers that went down on annual basis. In the second quarter, the current account deficit shrank by 0.3 percentage points of GDP more than projected in July, mainly due to the higher service surplus than expected. Minor net-inflows of Euro 3.4 million, or 0.04% of GDP were registered in the capital and financial account. The foreign trade analysis indicates that in July 2011, the trade deficit opened by 27.8%, annually. Such annual growth is mostly due to the slower but steady import of goods (by 7.7%) and lower export of goods (by 3.2%). Cumulatively observed, in the first seven months of 2011, the trade deficit enlarged by 24.2% compared to the same period of the preceding year. On 31.08.2011, the gross foreign reserves were valued at Euro 1,843.5 million, which is by Euro 129 million more compared to the end of the preceding year.
In July 2011, the annual growth of total deposit potential accelerated (13.9%), allowing maintenance of solid credit growth rates (8.7%). The growth pace of total deposits and total credits of the banks is expecting to continue in the next two months of the third quarter.
At its today's session, the Council also adopted several bylaws for the purposes of their harmonization with the new Law on the National Bank of the Republic of Macedonia ("Official Gazette of the Republic of Macedonia" no. 158/2010).
The harmonization with the new Law on the National Bank of the Republic of Macedonia created the need of adopting a Foreign Reserves Management Policy of the Republic of Macedonia, a Decision on Determining Instruments Used As Collateral in the Conduct of Monetary Operations, a Decision on Liquidity Credit of Last Resort, a Decision on Reserve Requirement, a Decision on the Contents and the Manner of Functioning of the Credit Registry, a Decision on Managing Banks' Liquidity Risk, a Decision on General Requirements for Opening Accounts in the National Bank of the Republic of Macedonia, a Decision on Submitting Data on Bank Deposit and Lending Interest Rates, a Decision on Submitting Data on the Balance and Transactions on Accounts of the Banks' Chart of Accounts and Financial Reports, and several other Decisions related to the banks' internal operations and organization.
The Foreign Reserves Management Policy of the Republic of Macedonia, adopted on the basis of the new Law on the National Bank of the Republic of Macedonia, besides the basic investment principles (safety, liquidity and profitability), precisely states the assets of investment of foreign reserves and transactions to be made during the foreign reserves management. Additionally, the Policy specifies the basics of the risk management elements and the levels of decision making in the foreign reserves management process.
The Decision on Determining Instruments Used As Collateral in the Conduct of Monetary Operations requires acceptance of high-quality debt securities by the National Bank when conducting monetary operations as a protection against credit risks. Furthermore, for protection against market and liquidity risks, coverage ratios have been determined that define transfer of higher amounts of securities in favor of the National Bank as collateral for the approved cash. During the monetary operations, the value of instruments used as collateral will be monitored daily. Moreover, due to the higher flexibility of the central bank and the banks during the liquidity management, the List of Securities for Conducting Monetary Operations has been extended with continuous government bonds and government bonds issued for structural purposes, for which adequate coverage ratios have been set.
For the purposes of preserving the financial system stability in environment of banks' liquidity problems that could not be addressed by other sources, the National Bank Council also adopted the Decision on Liquidity Credit of Last Resort. The credit of last resort falls due in a period up to 90 calendar days, and the interest rate is by three percentage points higher than the key interest rate on the National Bank open market operations. Novelty in this Decision is the systematic elaboration of the techniques for using the collateral, i.e. application of repo-transactions and the pledge for debt securities and swap transactions, when the credit collateral is in the form of foreign currencies.
Main novelty in the Decision on Reserve Requirement is the application of 0% reserve requirement rate on banks' liabilities to natural persons - time deposits with contractual maturity of above two years, and liabilities on Denar repo-transactions. Main purpose of this amendment is to encourage long-term savings of natural persons and development of a repo market, as a money market segment. Also, the introduction of a 0% reserve requirement rate on abovementioned liabilities is expected to release a portion of the banks' assets placed in reserve requirement, which will provide additional funds for the banks to increase the credit activity. Another amendment to the Decision on Reserve Requirement is the disclosure of an indicative calendar of periods by the National Bank for meeting the reserve requirement for the current year. Thus, the period of reserve requirement fulfillment remains the same, roughly one month, and the beginning of the fulfillment period corresponds with the date of conducting (settlement) of regular monetary operations of the National Bank. The Decision on Reserve Requirement has further been amended in terms of savings houses reporting. They will be required to report quarterly on the reserve requirement basis, taking into account the liabilities of the last month of the quarter. In addition, given the considerable cut of National Bank key interest rate and the money market interest rates in the recent period, and the reduction of the bank lending and deposit interest rates, the Decision on Reserve requirement decreased the reserve requirement compensation in Denars from 2% to 1%. These measures follow the reserve requirement system design in the Euro area and many transitional economies, whose reserve requirement systems seek towards the design in the Euro area.
The new Decision on the Contents and the Manner of Functioning of the Credit Registry rests on the old Decision, however, slightly amended, for addressing certain practical problems in the application of the Decision, and for further harmonization with the provisions of the Law on Data Protection ("Official Gazette of the Republic of Macedonia" no. 7/2005, 103/2008 and 124/2010).
The Decision on Managing Banks' Liquidity Risk, that also supersedes the old Decision, was subjected to amendments in the method of determining the banks' liquidity ratios. The Decision requires integrated bank liquidity monitoring, irrespective of the currency, by maintaining a single liquidity ratio (unlike before when liquidity ratios for the positions in Denars and in foreign currencies were monitored separately). Additionally, time deposits will be included in the calculations of the liquidity ratios, as an outflow with 80% because of their stable level, which was not the case before. However, the obligation remains to comply with the liquidity ratios up to 30 days, i.e. 180 days, as a ratio of assets to liabilities that fall due within the next 30 days i.e. 180 days. These amendments rely upon the enhanced liquidity of the banking system upon introduction of the liquidity ratios, and are in line with the stable and profitable operations of the banks, opening windows for further bank support to the nonfinancial sector. Once the liquidity ratios were introduced (in the March 2009 - June 2011 period), the liquid assets of the banking system increased by almost 90%, and its share in the total assets went up from 20.2% to 29.7%. Also, the coverage of short-term liabilities and household deposits with liquid assets substantially increased by 17 and 14.6 percentage points (at the end of June 2011, the coverage equaled 46.1% and 58.8%, respectively).
The Decision on General Requirements for Opening Accounts in the National Bank of the Republic of Macedonia, is a new decision setting forth the method and procedure for opening and closing accounts in the NBRM, and the Decision on Submitting Data on Bank Deposit and Lending Interest Rates and the Decision on Submitting Data on the Balance and Transactions on Accounts of the Bank Chart of Accounts and Financial Reports, both in the field of statistics, are means exclusively used for formal and legal adjustment to the new Law.
Governor's Office