On 15 December 2015, the NBRM's Operational Monetary Policy Committee held its regular meeting and discussed the situation in the domestic economy, the developments in the international and domestic financial markets, the developments in the banking system and the latest macroeconomic indicators in the light of the monetary policy setup.
On 15 December 2015, the NBRM's Operational Monetary Policy Committee held its regular meeting and discussed the situation in the domestic economy, the developments in the international and domestic financial markets, the developments in the banking system 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 the Operational Monetary Policy Committee decided the CB bills offered at the auction to be in the amount of Denar 25,500 million, at an unchanged interest rate of 3.25%.
The latest indicators suggest that the economic activity continues to grow at a solid pace, supported in part by the lending of domestic banks. Economic recovery takes place in the absence of price pressures or pressures in the external sector. Foreign reserves are still at an appropriate level, sufficient to cope with any unforeseen shocks in the future. The effects on the domestic economy associated with the domestic political developments are assessed to be limited and mainly materialized through the expectations channel. Yet, uncertainty can still be observed in the surrounding, therewith creating risks for the period ahead. Against such background, leaving the zone of accommodative monetary policy in the next period will depend on the further stabilization of domestic political context and its effects on the economy, as well as on the changes in the external position and the effects on foreign reserves.
The latest macroeconomic indicators do not reveal major changes in the monetary policy setup. In real sector, according to the latest available data, the GDP of the Macedonian economy in the third quarter grew by 3.5%, supported by both domestic and export demand. The available high frequency indicators for the last quarter indicate maintenance of favorable trends, which is particularly visible in industry and trade. The economic growth is in line with the October expectations. Despite these favorable developments, the still uncertain global recovery, especially unfavorable conditions on the global metals market and the uncertainty created by the domestic political context, remain risks that may affect the future recovery pace.
Inflation in November recorded a slight growth on a monthly basis, but on an annual basis and on average in the first eleven months of the year, the general price level in the domestic economy continued to decrease (a decline of 0.3%). Amid the annual rise in food prices and core inflation, over the entire period on average, the price drop is due to the reduced energy prices. The performances are somewhat below projections, which together with the expectations of lower world prices of energy and food products, indicate downward risks to the inflation projection for the following period. Frequent changes in the expectations about the prices of primary products indicate significant uncertainty about the future movement of these products, as well as high possibility of sudden changes in these categories.
According to the latest available data, foreign reserves in the last quarter increased, mostly due to government borrowings on the international financial market by issuing a Eurobond.
The foreign exchange market is stable for a longer period, without the need for major interventions by the NBRM. The change in the foreign reserves in the last quarter was within expectations in the October projection. The available indicators of the external sector show that the trade deficit and the private transfers, as key components of the current account, for now move within the projections. The analysis of foreign reserves adequacy indicators shows that they remain within a safe zone.
In terms of the credit market, the preliminary data for November show further monthly growth of total loans to the private sector, with credit support being directed to both household and corporate sector. The loans to the private sector continued to grow at a solid annual growth rate, with the current assessments not indicating major deviations from projections.
In November, the total deposits continued to grow on a monthly basis and this month the total deposit growth is supported by corporate and household deposits. The performance in the total deposits as of November shows that their growth may be somewhat higher than projected in the October projection.
Under the influence of autonomous factors in November, the banks' liquidity dropped for the second consecutive month, which caused the reduction of short-term bank deposits with the National Bank.
On the money markets, the banks also in November actively traded with deposits, and the interbank interest rate remained stable at 1.1%. On the secondary securities market, except CB bills, long-term government securities were also traded.
In November, favorable movements on the foreign exchange market continued, mainly due to the higher supply of foreign currency by companies of new production facilities, the construction sector and the currency exchange offices. In conditions of relatively high foreign exchange positions, the banks actively traded in the interbank market and the exchange rate was kept stable.
On international financial markets, the developments in November were mainly influenced by the heightened expectations of market participants about the beginning of monetary policy normalization by the FED and the decision on additional measures by the European Central Bank. Amid further moderate growth of the European economy and keeping inflation relatively low, the European Central Bank in early December, reduced the deposit interest rate by 0.1 percentage points (at the level of -0.30%) and prolonged the implementation of the quantitative facilitation program for at least 6 months or until the end of March 2017. On the other hand, the solid economic performance in the US and the favorable developments in the labor market and inflation, create room for making a decision on increasing the interest rates at the FED meeting in December 2015.
Generally, the recent developments suggest maintenance of similar macroeconomic landscape as estimated in October projections, with assessments for solid economic and credit growth, absence of price pressures and balance of payment position that ensures maintenance of foreign reserves at an adequate level. The fundamentals of the economy remain solid. The risks arise from the external, as well as from the uncertain domestic environment. Exogenous factors remain associated to the possible changes in the recovery pace of the global economic growth, as well as to the movements in the prices of primary products in world markets. In terms of domestic risks, despite their relatively small and restricted influence so far, the possible prolongation of uncertainty related to political developments leads to the possibility to spill over into the economy due to greater restraint on domestic and foreign entities. However, some of these risks are mitigated by the last measure of the NBRM in August. This measure, which introduced changes in the reserve requirement instrument, aims to further support the long-term savings in domestic currency, and thus support the process of "denarization" of the economy. The NBRM will continue to closely monitor the developments in the period ahead, and if appropriate, will make adjustments to the monetary policy aimed at successful achievement of the monetary policy objectives.