Today, December 26, 2003, the National Bank of the Republic of Macedonia Council has held a session at which it discussed and adopted the Decision on the monetary policy objectives for 2004 and the Monetary Policy Projection for 2004.

Skopje, 26 December 2003

Press release of the NBRM

Today, December 26, 2003, the National Bank of the Republic of Macedonia Council has held a session at which it discussed and adopted the Decision on the monetary policy objectives for 2004 and the Monetary Policy Projection for 2004.

Primary objective of the National Bank monetary policy in 2004 is maintenance of the price stability. The monetary policy measures will be directed towards achieving projected inflation rate of 2.8%, and maintaining stable real exchange rate of the Denar against the Euro, as an intermediary objective of the monetary policy. Same as previously, the National Bank monetary policy in 2004 will be conducted in coordination with the fiscal policy, particularly through the forthcoming issuance and development of the Government securities market.

More favorable movements on the foreign exchange market are expected on the basis of the projections for more intensive growth in the exports (9%) relative to the growth in the imports (4%) in 2004, as well as the surplus in other transactions in the balance of payments, thus ensuring maintenance of a four-month import coverage of the National Bank foreign exchange reserves.

The upward trend in the total private sector deposits with the banks is expected to continue in 2004, which would reach 13.8% on annual basis, primarily due to the returned confidence in the banking system and the abolishment of the restriction for handling foreign exchange by legal entities.

The National Bank monetary policy in 2004 will continue supporting the macroeconomic policy of the Republic of Macedonia, without jeopardizing the achievement of the primary objective - price stability. The acceleration of the economic growth in 2004 will be supported with the intensification of the banks’ credit activity. Therefore, the annual increase in the banks’ total credits with the non-government sector is projected to be 9%. The higher deposit potential of the banks and the possibility of extending foreign exchange credits are expected to act towards acceleration of the private sector crediting, with the interest rates being further increased.

The National Bank Council addressed the conduct of the monetary policy in 2003 and concluded that the National Bank fully attained the monetary policy objectives and goals and essentially contributed to maintaining macroeconomic stability, increasing the confidence in the financial system and providing conditions for inducing the economic growth in the Republic of Macedonia. The results are evident and confirm that in the monetary sphere the Republic of Macedonia approaches the performances of the European Union member states and accessing countries:

The price stability in the economy, as a primary objective of the monetary policy is maintained, with an average inflation rate of 1.1% being achieved to November 2003 inclusive, and the exchange rate of the Denar against the Euro being permanently stable all year round;

The stability of the prices and the exchange rate of the Denar against the Euro have been achieved along with the simultaneous relaxing of the monetary policy, evident through the gradual decline in the interest rates which reduced to the lowest level ever. The National Bank discount rate reduced from 10.7% at the end of 2002 to 6.5% in 2003. The interest rate of the Lombard credits dropped from 23% at the end of 2002 to 14% in 2003. The interest rate of the CB bills went down from 15% at the end of 2002 to around 6% in December 2003;

The reduction in the National Bank interest rates was followed by the commercial banks through the moderate, but general decline in their interest rates. The average interest rate of the banking credits dropped from 17.71% at the end of 2002 to 14.61% in December 2003. The average interest rate on the Money Market fell by two times, and from 14.36% at the end of 2002 reduced to 7.25% in November 2003;

The foreign exchange reserves reached US Dollar 890 million, which is an increase of US Dollar 156 million at the end of 2002. The permanent presence of the National Bank on the foreign exchange market through the regular interventions by a purchase of the excess or by meeting the demand for foreign exchange, enabled the economic entities to perform their activities in conditions of stable exchange rate and smooth liquidity in the international payments;

The positive movements in the real sector, the higher foreign trade, and particularly the significant increase in the exports of 20.9% relative to the imports of 16.7% in the first ten months of 2003, the surplus in the services and the other current transactions in the balance of payments which finance around 70% of the trade deficit, supported with the measures of the monetary policy, resulted in higher foreign exchange potential of the Republic of Macedonia, which at the end of October 2003 equaled US Dollar 1.6 billion;

As of October 31, 2003, the total deposits with the banks were by 16.9% higher compared to the end of 2002, which undoubtedly indicates higher confidence in the banking system of the Republic of Macedonia and the National Bank Supervision Department. The share of both Denar and foreign exchange deposits in the total deposits increased by 10.7% and 22.9%, respectively.

The price stability, the reduction in the interest rates, the increase in the deposits and the legal changes which allowed the banks to use the foreign exchange potential for crediting the domestic economy resulted in an increase in the total banks credits to the private sector. On October 31, 2003 compared to December 31, 2002, the total banks’ credits to the private sector went up by 9.5%, with the Denar credits registering an increase of 11.5%.

In addition to the aforementioned, at its today’s session, the Council ascertained that in 2003, the National Bank fully and timely fulfilled its liabilities arising from the arrangements of the Republic of Macedonia with the International Monetary Fund, the World Bank and the European Union. Thus in 2003, the National Bank further contributed to maintaining the macroeconomic stability and inducing the economic growth, to implementing the reform processes and strengthening the international position of the Republic of Macedonia, as well as to timely and fully exploitation of the international macrofinancial support.

At its today’s session, the NBRM Council also adopted the National Bank of the Republic of Macedonia Budget for 2004.

Governor’s Office