Regular meeting of the Operational Monetary Policy Committee of the National Bank

Skopje, 20 January 2022

On 18 January 2022, the National Bank Operational Monetary Policy Committee held its regular meeting and discussed the developments on the international and domestic financial markets and the indicators of the domestic economy in the context of the monetary policy setup.

The assessment of the latest macroeconomic indicators and of the environment of the monetary policy does not point to a current need for a change in the policy rate, but points to a need for careful monitoring. Hence, at its meeting the Committee decided to keep the policy rate at the level of 1.25%, and to offer CB bills in an unchanged amount of Denar 10 billion at the CB bills auction. When making the monetary policy decisions, the National Bank especially takes into account the movements in foreign reserves and in inflation.

Foreign reserves remain in the safe zone, and the performances in 2021 are slightly better than expected according to the latest forecasts. Cumulatively for the entire 2021, the foreign reserves increased by Euro 283 million, which is slightly more than expected. Regarding the factors that affect the performances of the foreign reserves, we do not have complete data, but according to the latest available data, the trade deficit and currency exchange operations correspond to the forecasts. On the foreign exchange market in December, under the influence of the seasonally increased supply of foreign currency on the currency exchange market, which is common for the period before the New Year and Christmas holidays, banks registered an increased purchase of foreign assets, which, together with their solid foreign currency liquidity, met the increased demand for foreign currency of the corporate sector. In such circumstances, the National Bank was present on the foreign exchange market only occasionally, with moderate interventions for sale of foreign currency.

Regarding the inflation, the average annual price growth for 2021 is within the forecast. On average for the entire 2021, the annual price growth amounts to 3.2%, amid forecasted growth of 3.1%. However, as globally, in recent period, the annual price growth accelerated, and the expectations for import prices have been corrected upwards. Price pressures are a consequence of the growth of the prices of primary products and the adjustments related to the particularity of the pandemic, for which the international financial institutions expect gradual stabilization. Hence, the price pressures still mainly result from factors on the supply side, without major pressures from demand. However, there is a need for careful monitoring. The uncertainty associated with price changes remains pronounced, given the uncertain economic effects related to the development and dealing with the pandemic, as well as the increased uncertainty on world energy markets. If the price growth is of a prolonged character and significantly affects the inflation expectations, the National Bank is prepared for an appropriate response with its available instruments.

Regarding the developments in the real economy, in the third quarter of 2021, the gross domestic product registered an annual real growth of 3%. These performances indicate that the domestic economy continues to recover gradually, in conditions of further immunization of the population and without major adverse effects of the occurrence of the fourth COVID-19 wave in this period. On average, in the first three quarters of 2021, the economy registered a real growth of 4.6%, which is close to the expectations of the National Bank of the October forecast. The currently available high-frequency data for the period October - November mainly point to further annual growth of the economic activity. Namely, the data for this period show continuation of the high annual growth rates in the turnover in the total trade and catering. On the other hand, in this period the industrial output registered a decline, but more moderate compared to the previous quarter, and the October data on completed construction works also show a slighter annual decline.

The recovery of the economy is supported by the solid developments in the monetary sector. According to the initial data for December 2021, the movements in deposits and loans are above the level forecasted for the last quarter of 2021, according to the October forecast.

In the international financial markets, amid reduced concern of investors about the adverse effects of the spread of the “omicron” variant, in December the withdrawal of the monetary stimulus by the central banks this year was the center of their attention. In such conditions, the prices of the safest government bonds issued by the leading economies in the world had a predominantly downward trend, i.e. their yields registered an increase, which was also supported by the increased inflation expectations.

Overall, at the meeting of the Committee it was concluded that almost all macroeconomic indicators are in line with the expectations. But, the uncertainty and risks from the further course of the COVID-19 pandemic and its effects are still present. The Fed and the ECB, as central banks that significantly affect the global financial markets, although they have not yet increased the key interest rate, started to gradually reduce the monetary stimulus in response to the economic recovery and the price growth. As before, also in the following period, the National Bank will carefully monitor the trends, the risks and the changes in the global conditions and is prepared for an appropriate response through the available set of instruments.