The National Bank of the Republic of Macedonia Council, at its session held today, reviewed the Quarterly Report, January 2010, which incorporates the revised macroeconomic projections for 2009 ad 2010.
Skopje, 4 February 2010
Press release of the NBRM
The National Bank of the Republic of Macedonia Council, at its session held today, reviewed the Quarterly Report, January 2010, which incorporates the revised macroeconomic projections for 2009 ad 2010.
Although the new macroeconomic framework of 2010 does not differ significantly from the November 2009 projections, yet, it reflects the improved environment for conducting monetary policy than previously expected. It mainly relates to the expectations for lower current account deficit than initially projected, which led to better perceptions for the level of foreign reserves. This ascertainment is also demonstrated by the favorable developments in the foreign exchange market in January this year, when NBRM kept on purchasing foreign currencies, a process that started in June 2009. The better perceptions for 2010, together with the already improved performances of foreign reserves in the preceding year, opened a space for further decrease in the NBRM basic interest rate. Hence, today, the NBRM made a decision to cut the interest rate by additional 0.5 percentage points, thus decreasing the CB bills interest rate from 8% to 7.5%. This triggered the reduction of the interest rate on NBRM over night credits (Lombard credits) from 9.5% to 9%. However, this does not mean that the risks to the monetary policy have been depleted. Even though revised downwardly, the projected current account deficit is still high, with its financing remaining to be a key risk factor. In case the capital inflows are not generated in the expected amount, the burden for current account gap financing will again fall on the foreign reserve. Therefore, the NBRM will keep on conducting prudential monetary policy.
Observing the expectations for 2009 and 2010, by segment, the latest projections indicate the following:
In 2009, the GDP fall is estimated to 1%, compared to the previous 1.6%. The third quarter reported a faster annual fall of GDP, however, in a slower pace than projected. The last perception shows interruption of the negative trend in the fourth quarter of 2009, and the GDP is expected to remain unchanged on annual basis. In spite of the relatively improved performances in 2009 compared to the expectations, and the optimistic forecasts for the global economy in 2010, the GDP growth rate in 2010, according to this projection as well, will range from 1% to 2%. The first quarter of 2010 expects a 0.4% growth, primarily driven by the exports recovery and the moderate revival of the personal consumption.
The average inflation for 2009 of -0.8% just slightly deviates from the projection of -0.6%. The inflation for entire 2010 is expected to swing around 1%, mostly due to the expectations for higher import prices, and the increase in the prices of electricity and the heating energy in January 2010. Considering the upward corrections of administrative prices, effective since the beginning of 2010, quarterly increase of the general price level has been projected for the first quarter of 2010 of 1.5%, which contributes to the fast deceleration of the annual price fall (-0.2%).
The permanent interventions in the form of purchase of foreign currencies on the foreign exchange market in the last quarter of 2009 indicated more favorable external position than expected. At the end of 2009, the foreign reserves ensured 4.3 months of export-import coverage for the next year, and are higher than expected. The latest perceptions show that such developments are a combined result of the lower current account deficit than previously perceived (7.5% of GDP in 2009, compared to 8% in the preceding projections) and higher capital inflows. The prospects of the external sector for 2010 are still perceived as relatively favorable. Current account deficit is expected to make up 8.3% of GDP which is lower than projected in November (9.4%), primarily due to the better perceptions for private transfer inflows and the lower income net-outflows. In the first quarter of 2010, the balance of payments current account expects a negative balance of 3% of GDP. Baseline scenario of the projections for the entire 2010 indicate ample foreign currency inflows, primarily through external borrowings and direct investments, which would ensure closing of the current account gap and moderate accumulation of foreign reserves. However, the capital inflow assumptions are accompanied with a great risk. They depend on the velocity of recovering of the global economy and the perceptions of foreign investors for the domestic economy, and therefore, are uncertain.
Given the better position of balance of payments than projected for 2009 and more stable expectations of the domestic agents, at the end of December 2009, the annual growth of the money supply was higher than projected (6% versus 2.3%) Perceiving that the influence of these factors will continue in the first quarter of 2010, the money supply is expected to reach an annual growth rate of roughly 9% in March 2010, and it is expected to equal around 7.5% at the end of 2010, compared to 6% as previously projected. Credit growth at the end of 2009 of 3.5% moderately exceeded the previous perceptions (2.6%). Same as in November, currently the projections point to larger lending space for 2010, compared to the previous year. The projected annual lending growth for 2010 equals roughly 9%, compared to 6.5% as previously projected. At the end of the first quarter of 2010, the lending activity is expected to increase by roughly 3% on annual basis. Deposit base extension, use of external sources of funding, and increase in the credit offer, due to the more favorable perceptions and expectations of the banks, are factors which are expected to support such credit growth. However, risks of lower credit support than projected still exist, conditioned primarily by the potentially slower pace of economic recovery and thus, lower quality of the demand for credits and slower growth of the deposit base.
Governor's Office