Skopje, 10 May 2023  

Policy and deposit facility rates increased by 0.25 percentage points

On 9 May 2023, the National Bank’s Operational Monetary Policy Committee held a regular meeting and discussed the latest data and information on the domestic and global economy and the latest developments on the international and domestic financial markets in the context of the monetary policy setup.

The National Bank continues to tighten monetary policy. At its meeting, the Committee decided to increase the CB bill interest rate by additional 0.25 percentage points to the level of 5.75%. At its meeting, the Committee also decided to increase the deposit facility interest rates, by 0.25 percentage points, whereby the interest rates on overnight and 7-day deposit facilities will equal 3.65% and 3.70%, respectively. The supply of CB bills at the regular auction remains unchanged and amounts to Denar 10 billion.

The latest change is a continuation of the monetary policy tightening which started from the end of 2021, primarily with active liquidity management through interventions on the foreign exchange market interventions, and then, since April last year, with the increase of CB bill interest rate, as well as interest rates on other monetary instruments. Such monetary setup is supported and strengthened by several changes in the reserve requirement, aimed at increasing savings in denars, as well as by systemic and macroprudential measures, such as the introduction of a countercyclical capital buffer and thresholds for borrower-based monitoring, which further strengthens the banking system resilience.

The latest data important for evaluating the monetary policy environment are generally within the expectations, but the risks persist.  Therefore, further caution is needed when conducting policies in order to stabilize inflation and inflation expectations on a permanent basis. In line with the expectations, the annual inflation rate in April 2023 registered a slowdown, which started in November last year, but it remains above the historical average in global terms as well.   Moreover, the core inflation remains high, which indicates that the transmission effects of energy and food prices on this component have not been fully exhausted yet. Expectations for the future dynamics of import prices remain downward, but accompanied by uncertainty related to the war in Ukraine.  The foreign exchange market movements are stable, amid increased propensity to save in domestic currency, and yet uncertainty remains.   In terms of the foreign interest rate, as an important external factor for the conduct of the domestic monetary policy, at its meeting in May, the ECB again decided to increase the policy rates, yet more moderately-by increasing the policy rate by 0.25 pp in accordance with the prospects for maintaining inflation at a higher level than expected, with special emphasis on the pressures on core inflation.

Regarding the latest indicators, in domestic prices, in line with the expectations, the growth continued to decelerate and as of April 2023 reduced to 13% (14.7% in March).  The slower annual inflation growth mainly results from the lower price growth with the food component. The latest expectations for the movement of import prices indicate downward movement of the stock market prices of oil and food, which would positively affect domestic prices, with a pronounced uncertainty in the following period, caused by the effects of the war in Ukraine.

In accordance with the international standards, the level of foreign reserves at the end of April is appropriate for maintaining the stability of the domestic currency exchange rate. The developments on the domestic foreign exchange market during April were generally stable, whereby the National Bank was occasionally present on the foreign exchange market. Regarding the latest available data from the external sector, the movements remain favorable, i.e. the trade deficit in the first quarter of 2023 is significantly lower than expected in the October forecasting round.  The developments on the currency exchange market are also favorable, which since the beginning of the year, as of April, were slightly better than the forecasted net inflows from private transfers.  

As for the domestic economic activity, in the last quarter of 2022, the real GDP growth slowed down, as expected, whereby on average, for the entire 2022, the economy registered a real growth of 2.1%, which is very close to the expectations in the October forecast of the National Bank. The currently available high frequency data for the first quarter of 2023 point to minor annual growth in the industrial output, slight annual growth of total trade turnover, as well as solid growth rates in construction and catering.  These movements indicate a possible moderate acceleration of the growth in the first quarter of 2023.

Regarding the monetary developments, according to the initial data for April 2023, the annual growth of credit activity continues to decelerate, faster than expected according to the October forecast.  On the other hand, the growth in deposits accelerates and is above the expectations for the second quarter. 

In general, inflation performances, combined with the uncertain and volatile external environment and the existing risks, impose further precaution from the macroeconomic policy makers and appropriate response in order to anchor inflation expectation and stabilize the inflation on a permanent basis.  The National Bank carefully monitors the macroeconomic data and risks and is prepared to use all the necessary instruments and to take measures that will contribute to maintenance of the stability of the exchange rate, stabilization of inflation expectations and to medium-term price stability.