Skopje, 6 December 2010

Press release of the NBRM

The National Bank of the Republic of Macedonia adopted a decision on additional decrease in the interest rate on CB bills by 0.5 percentage points, i.e. from 4.5% to 4%, today. Accordingly, the interest rate on Lombard credit also reduced from 6% to 5.5%. The possibility for further monetary policy relaxation primarily arises from the developments on the foreign exchange market. Namely, differently from the estimations for outflows from the foreign exchange reserves in the last quarter, in November and in the beginning of December, NBRM intervened with a net purchase of foreign exchange. It means that during this period, the foreign reserves registered an increase and on December 3, 2010 they totaled Euro 1,698 million, ensuring 4.3-month coverage of the imports for the following year. This level of foreign reserves is over the one that was projected in the latest NBRM projections in October, with positive deviation from the projection being expected to maintain also until the end of the year.

                The favorable movements on the foreign exchange market are in accordance with the performances in the external sector. The data on the foreign trade for September and October show possibility for smaller deficit in the foreign trade than projected. The better performances in this domain are combined effect of the intensified growth in the exporters' activities and the smaller pressures on the import demand than expected. Simultaneously, the data on the net inflows through private transfers point to better realization than anticipated. Having in mind these trends, it is assessed that there is a real possibility for realization of smaller current account deficit in 2010, in comparison with the deficit of 3.6% of GDP according to the latest projection. The latest realizations in the capital and financial account are also in favor of the anticipated improved correlation between the supply of and the demand for foreign exchange on the foreign exchange market, which points to the probably larger net inflows than projected.

                In the real sector, the latest indicators point to slightly bigger demand and economic growth than previously expected. However, despite these tendencies, the economy growth is still smaller than the potential one, with this situation being expected to continue also in the following year. Consequently, until the end of this and during the following year, no bigger pressures on the balance on the foreign exchange market from the domestic demand are expected. The preliminary data about the financial support to the real sector show annual credit growth of 8.6%, which is mainly in conformity with the projected annual increase of 9.4% for 2010. However, such crediting pace indicates a possibility for slightly smaller credit growth than anticipated, and in any case, it is in line with the smaller pressures on the imports than expected.

The movement of the inflation is within the projected frames. Although our expectations are in direction of further inflation growth, however, it is not expected that it will exceed the level which will cause deterioration in the expectations of the economic entities. From the aspect of the monetary policy, the factors influencing on the inflationary movements are of large importance. In this period and in the following year the inflation is expected to be under the influence of the intensified growth in the import prices, especially the food and the energy sources prices. On the other hand, having in mind the estimations for further maintenance of negative production gap, no inflationary pressures from the domestic demand are expected. It is expected that the domestic demand will neutralize part of the price growth caused by the increase in the import prices.

                Additional positive element for the favorable ambient for implementation of the monetary policy is the probability that the Government will reach an IMF precautionary credit line agreement. Such an arrangement is in favor of bigger certainty for ensuring the necessary additional external financing for the following year and thus, for the foreign reserves projection.

We expect that the decrease in the interest rate will contribute towards further lessening of the access to funding and thus more dynamic economic activity. Despite the relatively favorable macroeconomic movements, NBRM remains aware of the risks related to the macroeconomic scenario and continues with their close monitoring. If they begin to materialize, NBRM shall adequately react in order to maintain the stability of both the foreign exchange rate and the inflation. 

Governor's Office