Skopje, 13 March 2024
The National Bank policy rate remains 6.30%
On 12 March 2024, the National Bank’s Operational Monetary Policy Committee held a regular meeting 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 Committee assessed that the monetary policy setup 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. Furthermore, a decision was adopted at the end of February to change the reserve requirement maintenance and setup. The decision includes a set of comprehensive measures, which are to be implemented in phases, mostly from June 2024 and are generally aimed at further supporting the denarization process and increasing long-term saving in the banking system. The current level of interest rates, together with the changes in reserve requirement and macro-prudential measures taken, are expected to contribute to further slowdown in inflation and maintaining of the exchange rate stability.
In conditions of favorable foreign exchange market, when making a decision to maintain the current monetary policy setup, the main emphasis was placed on the need for inflation stabilization to the record low levels and long-term inflation expectations, bearing in mind the risks. In February 2024, domestic inflation decelerated and reduced to 3% annually, amid significantly reduced pressure from food and energy, as well as lower price pressures from less volatile categories, in line with the monetary measures taken. There are favorable signals from the Surveys on consumers’ inflation expectations, so as of February the expectations for reduced prices in the following period already prevail. The inflation rate in February is close to the one in the Euro area. The primary commodity prices in markets continued with a downward adjustment, with forecasts for the next period being revised downward as well. Inflation performance early in the year was lower than expected, yet it remains above the historical average, while risks relative to the future price dynamics remain. There is still no significant transmission of stock exchange movements on domestic food prices, amid uncertainty due to current military conflicts, as well as due to withdrawn temporary measures for part of the domestic food products. Hence, it was assessed that there is a need for further caution in the policy conduct, including policies that affect the demand in economy. Regarding the ECB policy, at the latest meeting in March the decision to maintain the policy rates at the same level was adopted again.
The foreign exchange market is stable and the movements are favorable. The level of foreign reserves at the end of February was Euro 4,348.1 million, which is an appropriate level for maintaining the domestic currency exchange rate. The foreign exchange market developments are favorable, amid moderately reduced net demand from the corporate sector and further high inflow of foreign currency on the currency exchange market. The available external sector data on the first quarter of the year remain limited and insufficient for a precise assessment. The current account deficit of the balance of payments in the fourth quarter of 2023 was significantly lower than expected in the October forecast, amid lower net financial inflows.
The economic growth in the last quarter of 2023, as well as throughout the year, is below average, which points to stronger deceleration in the economic growth than expected. The real growth of domestic economy in 2023 equaled 1%, amid GDP growth in the fourth quarter of the year of 0.9% annually. Analyzing by components, the growth in the last quarter results from net exports, coupled with the further solid growth of private consumption, and moderate contribution of public consumption. Gross investments still register a high real decline, affected by the decline in inventories due to high base effect from last year, which is associated with increased inventories of raw materials and energy. The currently available high frequency data for the first quarter of 2024 are limited. At the moment, January data show solid growth of industrial output, while the total trade turnover registered a real decline. Regarding the risks to the growth in the upcoming period, they remain and are primarily related to the external environment, as well as to the implementation dynamics of domestic infrastructural projects.
According to the monetary sector initial data on February 2024, deposits continue to grow, at a slightly faster pace than expected, with an accelerated lending activity of banks, and an annual growth which is so far above the forecasts for the end of the first quarter.
On the whole, although the monetary policy conduct ambiance is slightly more favorable than expected, it still requires further careful monitoring of dynamics and factors of inflation and inflation expectations and prudent conduct of the macroeconomic policies that affect demand in the economy, as well as through 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.