On 10 December 2019, the National Bank’s Operational Monetary Policy Committee discussed the key domestic economy indicators and the developments on both international and domestic financial markets in the context of the monetary policy setup.

The Committee also discussed the latest domestic economy developments in the context of the October macroeconomic forecasts. The Committee found that the monetary setup was appropriate to the current economic and financial conditions and that the economic fundamentals remained sound, with no imbalances in the economy. The low and stable inflation and favorable position of the balance of payments, since the beginning of the year, continuously contribute to interventions for purchasing foreign currency by the National Bank on the foreign exchange market. The dynamics and currency structure of household savings show stable expectations. In such circumstances, the Committee decided to keep the CB bills’ interest rate at 2.25% and at the CB bills auction on 11 December 2019, to offer CB bills in the amount of Denar 25,000 million.

Regarding the latest macroeconomic indicators for the domestic economy, according to the published estimated GDP data, the economic activity continued to grow in the third quarter of the year. The real annual growth rate is 3.6%, and the performances are currently within the expectations. Regarding the growth factors of the economy, a positive contribution was made by domestic demand, with further growth of private and public consumption and gross investments, while net exports made a negative contribution. The economic growth in the first three quarters of the year is 3.6% and is in line with the forecast for this time of year.  Available high frequency indicators for October are limited and insufficient to draw more precise conclusions about the fourth quarter, but for the time being the signals indicate a further increase in economic activity.

The average annual inflation for the period January-November was 0.8% and is slightly below the expected inflation of 1% for 2019. The uncertainty about the movements of primary commodities prices on the world markets continues to be the main factor of risk to the forecast of domestic inflation for the coming period.

As for the external sector indicators, the performances of the balance of payments in the third quarter of 2019 are generally within the forecasts. Foreign trade data as of October indicate a slightly higher trade deficit than forecasted, although the period is very short to draw more concrete conclusions. The currency exchange market data as of the first ten days of November point to the possibility for net inflows of private transfers according to the forecast for the third quarter. At the end of November, the foreign reserves increased, in terms of both the performances as of the third quarter and the end of 2018, with all adequacy ratios being in the safe zone.

In terms of movements in total deposits and total loans, preliminary data for November show their further annual growth, whereby the current movements do not indicate some larger deviations from the forecast.

In the period between the two Committee meetings, the liquidity of the domestic commercial banks was maintained at a relatively high level, due to which they continued to have a weak need for borrowing on the interbank deposit market. Banks continued to direct excess available denar funds to the deposit facilities with the National Bank, which provide high flexibility and availability of funds for smooth lending to domestic entities and other types of investments.

On the foreign exchange market in November, banks made a relatively high net sale of foreign currency for the needs of their clients. These developments, besides from seasonal factors, largely reflected the increased demand for foreign currency by non-residents. Banks fully met the higher demand for foreign currency by clients of the excess available foreign currency liquidity. In such circumstances, unlike the previous months when it was present with purchase of the excess foreign currency liquidity of the banks, in November the National Bank did not intervene on this market segment.

In November, the investors’ expectations for a positive result of the negotiations between the USA and China about the “first phase” of the trade contract again prevailed on international markets, which increased demand for riskier financial instruments. In such conditions, the yields on debt instruments continued to grow in international financial markets, while the price of gold decreased. In the analyzed period, central banks at global level continued to implement relaxing monetary policies, whereby the ECB relaunched the quantitative easing program.

Overall, at the meeting of the Committee it was concluded that the latest macroeconomic indicators are generally in line with the expectations, and the perceptions for the environment for monetary policy conduct are mainly unchanged compared to the previous assessment. However, the uncertainty and the risks from the external environment, as well as from the domestic context, were re-emphasized. In the period head, the National Bank will carefully monitor the trends and potential risks in the context of the monetary policy setup.