Skopje, 28 May 2009

Press release of the NBRM

The National Bank of the Republic of Macedonia Council held session today, with additional measures directed towards preserving the stability of the foreign exchange rate and price and financial stability in the economy being adopted.

For that purpose, the Council adopted new Decision on the reserve requirement, as well as the amendments to the Decision on managing banks' liquidity risk.

The Decision on the reserve requirement prescribes the following:

1) Increase in the rate of the reserve requirement for the banks' liabilities in foreign currency from 10% to 13%. However, the additional three percentage points are prescribed to be allocated in Denars against the remaining ten percentage points, which will continue to be allocated in foreign exchange;

2) Increase in the rate of the reserve requirement for banks' liabilities in domestic currency with FX clause from 10% to 20%;

3) Giving possibility to banks for full utilization of the funds of the reserve requirement allocated in Denars for their daily liquidity needs.

The amendments to the Decision on managing banks' liquidity risk prescribe the following:

1) The banks should include their placements in the instruments of the monetary policy of the National Bank, with exception to the reserve requirement in Euros, regardless of whether they are placements in Denars or in foreign currency, in the calculation of the ratios for determining the necessary minimal level of Denar or foreign currency liquidity;

2) To continue the dynamics for reaching the minimal level of the banks' Denar and foreign currency liquidity for July 01, 2009 - December 31,2009 period with the same pace, which was determined for the last four months of this year.

The new solutions in the stated decisions are expected to influence on the following:

1) Stimulation in the growth in Denar savings;

2) Decrease in the demand in foreign currency and stabilization of the foreign exchange market;

3) Creating conditions for larger flexibility with the banks regarding liquidity management and easier overcoming of the possible short-term liquidity fluctuations;

4) Maintenance and continuance in the development of prudent standards in the operating in the banks in the Republic of Macedonia.

The adopted decisions, actually, represent continuity in the undertaking of measures by the National Bank intended for maintenance of the stability of the foreign exchange rate, as an indirect objective in the maintenance of both price and financial stability in the system as a whole. The analyses of the National Bank indicate that these additional measures are necessary, as well, since the risks, especially with the external sector of our economy, persist with the same intensity. Namely, the last available data show that:

1) In the first months of the year, the deficit on the current account increased by double, in conditions when the net inflows on capital and financial account are lower by roughly 40%, which resulted actually in high volume of interventions from the foreign reserves. As of May 22, 2009, the gross foreign reserves totaled Euro 1,184.7 million, and compared to the end of 2008 they reduced to Euro 310.2 million. The largest contribution to the deepening of the deficit on the current account accounts for the enlargement of the export - import gap on annual basis, in conformity with the more sever drop in the export of 34.5% compared to the decrease in the import of 16.7% in the first quarter. The decline in the external demand, the recovery of which will not happen on a short-term basis, especially affects our most significant export branches (annual decrease in the net export of iron and steel of 74.7% and the clothing and textile of 12.7%). On the other hand, the structural analysis of the import shows annual increase in the import of consumption goods in the first quarter of 1.9%, thus exceeding the NBRM projection by 15.6%. In the first quarter, the import of vehicles dropped by 18.8%, annually, but still this category exceeds the NBRM projection (by 9.9%). This shows that despite the gradual slowing down of the credit growth, however, the import of consumption goods adjusts slowly to the level of availability of the foreign assets in the domestic economy.

2) The deepening of the current account deficit is also influenced by the lower net inflows based on currency exchange operations (as a dominant component of the private transfers), which fell cumulatively by 29.3% on an annual basis. Although in April these inflows registered an annual growth, however, their further dynamics can hardly be predicted in conditions of global crisis in such dimensions.

The NBRM Council was informed also on the remaining macroeconomic movements. The trend of decrease in the inflation continued in April 2009, as well, when a decline in the consumer prices of 0.5% annually, was registered, mainly due to the high comparison base which conditioned a decrease in the prices of oil derivatives and food. In the first four months of 2009, the cumulative dynamics of the average growth in prices constantly decelerates, and the inflation, on average, equals 0.6%. The trend of slowing down of the dynamics of the annual growth of the total deposits and credits with the private sector continued also in April. The annual growth rate of the total deposits with the banks (with demand deposits) in April equals 6.3% (compared to 7.7% in the preceding month), which is mainly a reflection of the annual increase in the foreign currency deposits of 23.6%, while the Denar deposits in April 2009, compared to the same month of the preceding year were lower by 8%. In April 2009, the lending of the banking sector augmented annually by 21.4%, compared to 25.3% in March 2009, given more intensive deceleration of the increase in the households' credits.

Governor's Office