The released funds are expected to further support the Macedonian economy by encouraging bank lending
Skopje, 13 April 2020
Today, the National Bank Operational Monetary Policy Committee (OMPC) has held a meeting and agreed to reduce the amount of CB bills that banks can subscribe with the central bank, while keeping policy rate unchanged. The Committee has reviewed the latest domestic economy indicators and international and domestic financial markets movements, in the context of the monetary policy stance.
It has also been decided to reduce the CB bills offer at the auction to be held on 15 April 2020 by Denar 8,000 relative to the amount due. Thus, Denar 17,000 million will be offered at the auction, at an unchanged interest rate of 1.75%. The funds released with the reduced CB bills offer are expected to further support the Macedonian economy by maintaining credit flows and credit cycle of the banking system. Such measures follow the policy rate cut, the regulatory amendments that provide for greater flexibility and room for banks to focus on the lending process, as well as the changes to the reserve requirement that releases additional liquidity and supports lending to the most affected sectors in the economy. Ensuring additional liquidity is particularly important, given the shock specifics and the measures taken to combat it.
After the two-time cut of CB bill rate this year, the Committee has agreed to keep it at 1.75%. The outbreak of COVID-19, as an unexpected exogenous shock, is expected to have a temporary detrimental effect on both global and domestic economies. In such circumstances, and amid solid foreign reserves and low inflation, the National Bank monetary policy has been and remains adjustable since early this year, with the policy rate being cut by 0.5 percentage points to 1.75%. Given the monetary policy relaxation, the Committee has agreed to keep the CB bill rate at the current level, as appropriate to the current economic and financial circumstances.
The Committee has also reviewed the international financial market developments, which were marked by extremely high volatility and investors' focus on safe havens. Consequently, there has been a sharp decline in stock prices, whereas the prices of safe havens hit a record high. The EUR/USD currency pair has registered extremely volatile movements and there has been a further fall in oil prices given the high global supply of this energy source and reduced demand. In order to support economic activity against a backdrop of emergency coronavirus management measures, which has globally disrupted supply chain and trade, posing challenges to most economic activities, the central banks of the largest economies have significantly eased the monetary policy, while governments have increased fiscal incentives.
The Committee has also reviewed the latest economic indicators in the domestic economy. The latest available data point to stable flows, but the uncertainty about the future macroeconomic effects of COVID-19 pandemic is high. The available high-frequency data on economic activity for the period January-February 2020 indicate a further economic growth in the first quarter of the year, but the risks for the coming period are unfavorable. Analyzing inflation, as of the end of March, the average annual growth rate of consumer prices is 0.6%, which is still low compared to the October forecast. The level of foreign reserves continues to be in the safe zone, with the performance in the first quarter of this year being as expected. Observing total deposits and total loans, initial data as of March show further annual growth of both deposits and loans, without major deviations from the forecast for the first quarter of the year.
Despite the stable trends so far, the outbreak of COVID-19, as an unexpected exogenous shock, is expected to affect some segments of the domestic economy, entailing greater deviation from the October forecast. The deteriorated global environment and the preventive measures tend to weaken some business activities in the economy and influence the expectations of economic agents for the period ahead. However, it is estimated that these deviations are not caused by shifts in economic fundamentals and are expected to be temporary.
The National Bank remains consistent in achieving its objectives - maintaining stable prices, stable exchange rate and maintaining financial stability, while supporting the real sector by providing favorable financial conditions. As before, we continue to closely monitor the developments as well as the potential risks arising from the environment and their effects on the domestic economy, in order to respond appropriately and timely by adjusting policies and taking additional measures.