On 16.12.1999, the Council of the National Bank of the Republic of Macedonia held its LXXVI meeting, at which monetary and foreign exchange issues were discussed.
Skopje, 16 December 1999
Press release of the NBRM
On 16.12.1999, the Council of the National Bank of the Republic of Macedonia held its LXXVI meeting, at which monetary and foreign exchange issues were discussed.
The members of the Council of NBRM discussed about and adopted the Projection of the monetary policy for year 2000, which according to the legal procedure will be given to the Parliament of the Republic of Macedonia for adoption. On the meeting was stated that it is expected the monetary policy in year 2000 to be realized in normal conditions, i.e. its accomplishment will not be interrupted by excessive external shocks, which we faced with in 1999. Therefore, the basic macroeconomic assumptions for fulfillment of the monetary policy in year 2000 are: real GDP growth of 6.0%, which is on the level of the average growth rate of the most successful countries in transition; annual inflation rate up to 4.0%, including the effect of introducing the VAT, as well as the changes in energy prices; the foreign exchange rate will be still the main intermediary target of the monetary policy, and it will be aimed for maintaining the price stability as ultimate goal of the monetary policy. Using the foreign exchange rate as main nominal anchor is a result of the empirically confirmed high level of correlation between the developments of the foreign exchange rate and the rate of inflation.
The monetary policy in year 2000 will be aimed for maintaining the stability of the domestic currency, and through optimal supply of money and credit it will support the realization of the projected economic growth. The nominal increment of the money supply (monetary aggregate M2) in year 2000 will be 13.5%, which is by 2 percentage points higher that this year's projection. In accordance with the efforts of the monetary policy to act toward a more dynamic economic growth, with the projection for the year 2000, a substantial increase in the banks' total credits in the amount of Denar 6.1 billion, or by 17.9% is projected. This represents the biggest expansion of the credit activity since the declaration of the monetary independence, and it is by 2.5 times greater relative to the realized increase in the credit activity during this year.
It is expected that the tendency of excess supply over demand for foreign exchange will remain on the foreign exchange market, which would primarily be a result of the capital inflows on the basis of donations and foreign investment. In addition, the total net excess of foreign exchange in the year 2000 is expected to be US Dollar 55.4 million. In order to avoid the disturbance of the stability of the exchange rate of the Denar, the National Bank will intervene by purchasing the excess supply of foreign exchange at the market, hence resulting in an increase in the official foreign exchange reserves by US Dollar 80 million. With this, they will reach the level of the value of 3.3 months of imports. Having in mind that the expected excess supply of foreign exchange exceeds the existing capacity of the monetary instruments, the purchase of foreign exchange would have to be supported by a transfer of Government's deposits with the Central bank in the amount of Denar 1.300 million. This will enable the projected increase in the stock of reserve money for the year 2000 to be used for the support of the banks' credit activity, rather than for the purchase of the excess foreign exchange.
The National Bank of the Republic of Macedonia will continue its orientation towards market instruments of monetary regulation. In this direction, in the year 2000 the credit ceilings will be abolished, as being a non-market instrument of monetary control. Meanwhile, in order not to lose control over the increase in the monetary aggregates, it is necessary to develop further the Central banks bills market and other securities markets, as well as to strengthen the supervision control, especially with respect to the quality of the banks' placements. At the same time, it is expected that the fully developed Inter-bank Money market, together with the payments system reforms, will enable a more optimal dispersion of the banking system's liquidity and a more efficient management with banks' funds.
Governor's Office