Skopje, 12 June 2024
The National Bank policy rate remains 6.30%
On 11 June 2024, the National Bank’s Executive Board held a regular meeting on the monetary policy setup and discussed the latest data and information on the global and domestic economy and the latest developments on the international and domestic financial markets in the context of the monetary policy setup.
The current monetary policy setup is assessed as appropriate to the economic conditions. Thus, the interest rate on CB bills remains 6.30%, while the interest rates on overnight and 7-day deposit facilities at the levels of 4.20% and 4.25%, respectively. The supply of CB bills at the regular auction also remains unchanged and amounts to Denar 10 billion. The current level of interest rates, together with the changes in reserve requirement and macro-prudential measures taken, are still expected to further slowdown inflation and maintain the exchange rate stability. Moreover, the latest changes in reserve requirement, which started to be applied from June, provide further support to the prudent monetary policy.
When making a decision to maintain the current monetary policy setup, the main emphasis was placed on the need for inflation stabilization and long-term inflation expectations. In May 2024, the inflation moderately accelerated and equaled 4.5% annually, amid positive contribution to the growth of both core inflation and other components. However, the inflation pace in May does not deviate from the trajectory within the National Bank spring forecasts. According to these forecasts, an average inflation of 3.5% is expected for the entire 2024. As for the primary commodities prices on the markets, the latest forecasts have been revised slightly upward, with a minor decline this year, while the uncertain geopolitical context still creates uncertainty and upside risks for the coming period. Hence, it was assessed that there is a need for further prudent monetary policy conduct. Regarding the European Central Bank (ECB) policy, at the latest meeting in June it was decided to cut the policy rates by 0.25 percentage points, in line with the market expectations. The ECB pointed out that despite the decrease, with the new level of interest rates, the monetary policy remains tightened and prudent.
The foreign exchange market is stable and the movements are favorable. The level of foreign reserves at the end of May was Euro 4,293.6 million, which is an appropriate level for maintaining the domestic currency exchange rate. The foreign exchange market developments are still favorable and contribute to net purchase of foreign currency by the National Bank since the beginning of the year, amid solid inflow of foreign currency on the currency exchange market. Regarding the latest available data from the external sector, the trade deficit in April 2024 is in line with the expected according to the April forecasting round. The performances on the currency exchange market in the second quarter, as of the second decade of May are currently close to the forecasted net inflows from private transfers.
The economic growth in the first quarter of 2024 slightly accelerated, in line with the National Bank forecasts, yet more moderate than expected. The real growth of the domestic economy amounted to 1.2% annually, amid further quarterly growth as well. The available high-frequency data for the second quarter of 2024, point to high real annual growth of the total trade turnover, while industrial output slightly declined. However, data availability is limited and is not sufficient to make a more accurate assessment. Regarding the risks to the growth in the next period, they are still present and are primarily related to the developments in the external environment, but also to the intensity of implementation of domestic infrastructure projects.
In the monetary sector, according to the initial data as of May 2024, the deposit potential of banks further increased, similar to the expectations, amid slightly faster credit growth than forecasted.
In general, the latest developments in the macroeconomic indicators are currently closer to the latest forecasts, but the conditions for monetary policy conduct remain uncertain. Further careful monitoring of the inflation dynamics and factors is needed, as well as prudent conduct of the macroeconomic policies that affect the demand in the economy, as well as on the labor market. The National Bank remains prepared to use all the necessary instruments and to take appropriate measures that will contribute to maintenance of the stability of the exchange rate, stabilization of inflation expectations and to medium-term price stability.