On 9 May 2017, the NBRM's Operational Monetary Policy Committee held its regular meeting and discussed the situation in the domestic economy, the developments on the international and domestic financial markets and the indicators of the domestic economy

On 9 May 2017, the NBRM's Operational Monetary Policy Committee held its regular meeting and discussed the situation in the domestic economy, the developments on the international and domestic financial markets and the indicators of the domestic economy in the light of the monetary policy setup.

At the Committee's meeting it was decided to maintain the interest rate on the CB bills at 3.25%, despite the solid economic fundamentals, and given the still present risks from the domestic political developments. Also, having in mind the stabilization of the banks' potential liquidity, it was decided that at the auction to be held on May 10, to keep the supply of CB bills unchanged and amount to Denar 30,000 million. 

Despite the political crisis, economic agents’ expectations continue to be relatively stable, while the assessments on the soundness of the economic fundamentals are still positive. Developments in the foreign exchange market are stable, where, cumulatively, in the first four months on the year, NBRM intervened through a small net purchase of foreign currency. Foreign reserves remain at an adequate level.

In terms of the available indicators, April data on price developments in the domestic economy point to an annual inflation growth of 1.0% or an average price growth by 0.6% in the first four months of 2017. These performances are due to the energy prices and core inflation, amid still lower food prices. 

From other high frequency indicators, April data on foreign reserves compared to the end of 2016 register a decrease, mostly due to the maturity of foreign currency deposits of the domestic banks with the NBRM, as well as the transactions with a temporal effect. 

However, all foreign reserves adequacy indicators show that they remain in a safe zone. Also, data on currency exchange market at the beginning of April suggest normal net inflows of private transfers. In March 2017, favorable developments were also registered in external trade.  Namely, export registered a significant annual growth of 21.4%, amid import growth of 13.1%, which led to decrease in trade deficit by 3.4% annually. 

In terms of banking system, the preliminary data for April 2017 show a decline in savings compared to the previous month. Such performances reflect the deposits decline in both sectors, households and corporations, even though more moderate in household deposits in conditions of increased uncertainty. On the other hand, in terms of lending activity, preliminary data as of April show increase of loans on a monthly basis, with further more pronounced lending to the “household” sector.  

In April, shortly after the several months increase, banks’ liquidity moderately decreased, mainly due to the seasonally higher demand for denar cash by households, which is typical before Easter and Labor Day.  Typically seasonal developments were registered in the foreign currency market followed by a relatively lower demand of foreign currencies from the corporate sector, which was partially compensated by the increased supply of foreign currencies by the exchange offices.  

The higher supply of foreign currencies in the foreign exchange market was mainly due to the seasonal effect during Easter holidays. Such developments in the foreign exchange market enabled improvement of the banks’ foreign currency liquidity and the NBRM’s intervention for purchasing foreign currencies from the supporting banks. In the second half of the month there was a boost of foreign currency demand by clients from the banks, which was subsequently reflected on the demand increase of foreign currencies in the interbank market. 

This month, due to the efficient liquidity management, banks actively traded in the money markets, and the excess funds in their accounts were directed to the deposits with the NBRM. 

The reduced political uncertainty in the euro area was felt in the international financial markets, but risks still dominate globally.  In France, Macron was elected the next President of the state, who has pro-European political views, reducing the uncertainty in terms of the impact of the potential political instability on the European financial markets. Thus, according to analysts, at some point the ECB space in terms of the possible withdrawal of stimulative monetary measures in the following period increases. American economy indicators were in line with the expectations i.e. that the central bank – FED will continue with gradual normalization of the policy in the next meeting. 

The Committee concluded that the assessment for stable economic fundamentals remain positive and that performances in key monetary policy variables are within expectations. Risks arising from the domestic political developments are still present and pronounced. At the same time, the risks arising from the global environment remain in the focus. 

The NBRM will closely monitor the developments in the coming period, while the future changes to the monetary policy will largely depend on the developments in the external sector as well as the domestic political environment.

Governor's Office