On July 8, The National Bank of the Republic of Macedonia Council held its eighth session today.

At the session, it discussed the latest Quarterly Report, and ascertained that the domestic economy continues to recover rapidly, amid low inflation and increased credit support from the banking sector. During the second quarter of 2014, the National Bank maintained its policy rate at 3.25%. This decision was based on the latest macroeconomic projections in April and the recent performances of key macroeconomic and financial indicators. The analyses showed that given the maintenance of appropriate level of foreign reserves, reduced inflationary pressures and enhanced credit support from the banking sector, there have been conditions for a sustained recovery of the private sector without any additional monetary stimulus. In the next period, the National Bank will closely monitor the situation for the purposes of timely and appropriate adjustment of monetary policy. Key macroeconomic parameters in the domestic economy generally moved as projected in the April cycle. Gross domestic product registered an annual growth of 3.9%, which is a higher rate of growth than expected for the first quarter. The export sector remains the major generator of growth, as an effect of the increased activity of new production facilities in the technological industrial development zones and the gradual strengthening of external demand. During the second quarter, domestic prices declined annually by 0.9% on average. Such performances imply considerably lower inflationary pressures than expected, mainly due to factors on the supply side, i.e. downward deviations in the dynamics of international prices of food and oil and their knock-on effects on domestic prices. A slowdown was noted in core inflation, which in the second quarter equaled 0.7%, on average. Real estate prices in the domestic market increased, after the negative shifts in the previous two quarters. Considering the actual movements and the latest revisions of external input assumptions, risks around the inflation projection of 1% for 2014 are assessed as predominantly downward. In the second quarter, banks were also supportive of economic recovery through further growth of lending to the private sector. New lending in this period was largely directed to households, with further credit support to the corporate sector, as well. The movements on the foreign exchange market were as expected, and the foreign reserves remained at a level appropriate to absorb any unforeseen shocks. In terms of risks about future movements, in this period, it was estimated that they are mainly external and associated with possible changes in the pace of recovery of the global economic growth and the movement of international prices of food and energy. Generally, recent developments point to maintenance of an appropriate level of foreign reserves, reduced inflationary pressures and enhanced credit support of the economic growth by the banking sector. At the meeting, the National Bank Council also reviewed the Report on Risks in the Banking System in the Republic of Macedonia in the first quarter of 2014. The conclusion was that the banking system, amid external environment filled with great challenges, managed to maintain its liquidity and solvency, and therefore, its soundness and reliability. The total assets of the banking system grew both quarterly and annually, but at a different pace. Long-term denar deposits of the household sector were generators of the growth of deposit activity, continuing the trend of positive changes in currency and maturity profile of the banks' funding sources. In the first quarter of 2014, the banking system generated profit, thus interrupting the trend of negative financial result at this time of year. On 31 March 2014, non-performing to total loans ratio reduced to 11.1%. However, after the cut-off date of this report, i.e. the end of May 2014, the rate of non-performing loans went back to the average level in 2013 (11.9%). Credit risk remained the most common risk in the banking system of the Republic of Macedonia, but the full coverage of nonperforming loans with total impairment reduces the risk of their noncollectiblity to the banks' solvency. On 31 March 2014, capital adequacy ratio was twice the capital requirement and equaled 16.6%. Liquidity continued to strengthen, which is mainly due to increased investments of banks in treasury bills, which despite being of low risk, are a suitable instrument for liquidity management. Nearly one-third of the banks' assets are liquid assets, which provide high coverage of short-term liabilities of banks. It is noteworthy that the Macedonian banks generally do not depend on loans from their parent entities, whose amount declined further in the first quarter of 2014. At today's session, the National Bank Council adopted a new Decision on the contents of audit of annual financial statements and operations of a bank. This Decision is the result of the need to comply with the recent amendments to the Banking Law in terms of the scope of audit of the commercial bank operations, where the most significant change relates to the inclusion of the process of internal determination of equity in the audit. The amendment to the Decision on the manner and conditions under which residents which are not authorized banks may open and hold accounts abroad, adopted by the Council, allows residents who opened accounts in foreign banks to freely transfer funds from and to the Republic of Macedonia, not only with the country where the resident has obtained a temporary residence permit or a valid work papers, but also with countries that are part of the Single Euro Payments Area (SEPA). At today's session, the Council, based on the schedule and pace of activities and the previously adopted decisions on issuing collector coins, adopted decisions on putting into circulation collector coins "Libra" and "Scorpio" from the Zodiac series in denomination of 10 denars. The collector coins will be put into circulation starting from 15 August 2014. The Council also considered other matters within its jurisdiction. Governor's Office