Skopje, 10 March 2021 

On 9 March 2021, the National Bank Operational Monetary Policy Committee held its regular meeting and discussed the developments on the international and domestic financial markets and the indicators of the domestic economy in the context of the monetary policy setup.

At the meeting, the Committee decided to reduce the key interest rate by additional 0.25 percentage points, to the level of 1.25%. The decision on further monetary relaxation is made in conditions of stable movements on the foreign exchange market and moderate dynamics of the inflation, and amid still present uncertainty about the health crisis and the impact on the path of recovery of the economy. In support of the decision is the more pronounced accommodative character of the ECB aimed at maintaining the favorable financial conditions in a longer period. The further relaxation of the monetary policy is aimed at additional easing of the financial conditions and further support to the domestic economy, bearing in mind the current development of the pandemic, which still lasts. At the same time, the Committee assessed that the liquidity released through the main National Bank instrument of Denar 15 billion last year is appropriate, and decided at today’s auction to offer the same amount of CB bills of Denar 10 billion.

The further relaxation of the monetary policy is expected to contribute to reducing the price of financing through bank loans and further credit support to the private sector, in order to mitigate the effects of the pandemic on the domestic economy.

According to the latest available macroeconomic indicators of the economic activity, the fall in the gross domestic product continued to slow down in the last quarter of 2020, according to the expectations, and the fall in the economy for the entire 2020 is generally within the latest forecasts. Namely, the gross domestic product in the last quarter of 2020 dropped by 0.7% on an annual basis, after the fall of 3.3% in the previous quarter. Thus, the real fall in the economy in 2020 equals 4.5% which is in line with the National Bank forecasts for a decline of 4.9%. Available high frequency data for the first quarter of 2021 are limited and for the time being it is difficult to draw clear signals for the economic activity in this period.

Regarding the inflation developments, in the first two months of 2021, the price changes are moderate and are in line with the expectations according to the latest forecast of the National Bank. In conditions of revisions mainly in an upward direction with the external input assumptions, there is still pronounced uncertainty arising from the movement in the world prices of primary products in the period ahead and their impact on domestic prices.

Foreign reserves are still at an appropriate level and are maintained in the safe zone. The latest external sector data as of January 2021 currently indicate a slightly lower trade deficit than expected for the first quarter of the year, while the latest currency exchange operations data do not deviate significantly from the expectations according to the October forecast. The performance of the balance of payments for the entire 2020 indicates a moderately lower current account deficit and moderately higher financial inflows, compared with the expectations with the October forecast.

Within the monetary sector, according to the initial data as of February 2021, the annual growth of the total deposits and loans continues, whereby the growth of the total loans is more moderate than forecasted for the first quarter of 2021 with the October forecast.

In the period between the two Committee meetings, the liquid assets of the banking system were maintained at a solid level, which contributed for the banks’ need to trade in short-term denar liquid assets on the money markets to remain low. Market movements, accompanied by the solid foreign currency liquidity of banks, in February, contributed to a further reduction of the amount of interventions for sale of foreign currency by the National Bank for the banks, which was the lowest from the beginning of the crisis onwards.

In February, with the process of vaccination against the coronavirus around the world, the investors on the international financial markets had more positive expectations for recovery of the global economy. In such conditions, as well as due to the prospects for an additional fiscal stimulus in the USA, the prices of government bonds in the USA registered a significant fall, which also influenced the decrease in the prices of government bonds in the euro area. A decrease was also registered in the currency pair euro/US dollar, which was largely driven by the prospects for a faster recovery of the economy in the USA and the perceptions for a faster commencement of the process of tightening of the monetary conditions by the Fed.

Overall, at the meeting of the Committee it was concluded that for the time being the flows in the economy are stable, without major deviations in the key macroeconomic indicators from the forecasted path. Uncertainty and risks from the pandemic caused by COVID-19 persist, both globally and within the domestic economy. The National Bank will continue with great vigilance to monitor the unfolding of the events and the potential risks from the environment and their effects on the domestic economy, for the purpose of an adequate and timely reaction through appropriate policy adjustment.