Skopje, 23 October 2024
interest rates on CB bills decreased by 0.25 percentage points -the prudent monetary policy still has been maintained
On 22 October 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 Committee assessed that the latest conditions in the economy enable further prudent normalization of the monetary policy setup. Hence, the Committee decided to reduce the interest rate on CB bills by 0.25 percentage points, to the level of 5.8%. Interest rates on overnight and 7-day deposit facilities remained unchanged, at the levels of 4.20% and 4.25%, respectively. The supply of CB bills at the regular auction also remained unchanged at Denar 10 billion.
The change in the interest rate on CB bills, amid unchanged interest rates on overnight and 7-day deposits, maintains the prudent approach in the monetary policy conduct. This reflects the context that includes risks related to external environment, as well as to domestic factors that affect the aggregate demand. The level of interest rates, together with the changes in reserve requirement and macro prudential measures taken, is expected to contribute towards price stability in the medium run and exchange rate stability maintenance.
The monetary policy decision is based on the estimates for the inflation, which moves within the expectations, as well as on the continuous favorable developments on the foreign exchange market. In September, the annual inflation rate equaled 2.6% (2.2% in August), amid slightly accelerated food prices, which is related to the seasonal shift of agricultural products due to unfavorable weather conditions and their negative impact on yields. However, the core inflation decreased compared to the previous month with stable movements on annual basis, while energy prices further declined. Given the lower 2023 base effect (due to last year’s measures for temporary limitation on the price growth), the annual inflation rate is expected to fluctuate by the end of the year, but for the entire 2024, on average, the inflation is expected to be within the April forecasting round, i.e. 3.5%. The EC's surveys of consumers' expectations show that the expectations for price reduction in the next period dominate for six consecutive months. Regarding the stock prices of primary commodities, the latest forecasts have been revised downwards, in line with the increased supply and the reduced demand, which is associated with the prospects for economic growth.
The foreign exchange market is stable and the movements are favorable. The level of foreign reserves at the end of September equaled Euro 4,406.6 million, which is an appropriate level for maintaining the stability of the domestic currency exchange rate. In line with the favorable developments on the foreign exchange market, the National Bank purchased foreign currency since the beginning of the year, which contributed to improved performances in the foreign reserves than expected. Regarding the latest available data from the external sector, the trade deficit in July and August 2024 is currently better compared to the expectations for the third quarter of the April forecasting round. The developments on the currency exchange market as of the end of September are slightly lower than the projected net inflows from private transfers. The current account deficit of the balance of payments in the second quarter of 2024 was lower than expected according to the April forecast, amid higher net financial inflows.
Regarding the European Central Bank (ECB) policy, as a factor that the National Bank has taken into account, at the latest meeting in October, the decision to reduce the interest rate by 0.25 percentage points was adopted for the third time this year.
The economic growth in the second quarter of 2024 accelerated at 2.3%, which is almost identical to the National Bank forecasts. Also, the growth of 1.8% in the first half of the year is close to our forecast of 1.9%. The currently available high frequency data for the third quarter of 2024 point to further acceleration of economic growth. Currently, data for July and August, on average, indicate increase in the industrial output, as opposed to the decline in the previous quarter, with moderate acceleration of the real annual growth in total trade turnover. Favorable developments were registered in construction and catering services, as of the available data for July. 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, the performances in the third quarter are mainly within the forecasts. Bank’s deposit potential remains solid, at a growth pace close to the expectations, while the growth of the credit activity still slightly exceeds the projected one.
Generally, the latest developments in the key macroeconomic indicators, as well as the perceptions in relation to their future path, created an opportunity to further reduce the interest rate on CB bills. The risks related to the external environment need to be further monitored, primarily the prices of primary products, which are still affected by the unstable geopolitical context and climate changes, and one should pay attention to the risks from the domestic factors that can affect the demand and prices in the period ahead. Hence, the conduct of prudent macroeconomic policies will be our priority in the future as well. 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 and the medium-term price stability.