Skopje, 31 January 2024 

Policy Rate Remains at 6.30%

On 30 January 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.

At the meeting, it was decided that the interest rates to remain the same. Thus, the interest rate on CB bills remains 6.30%, with simultaneous maintenance of 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. At the meeting, it was assessed that the current interest rates level, together with the changes in reserve requirement and the macro-prudential measures undertaken so far, will contribute to further slowdown in inflation and maintenance of the stability of the exchange rate.

In the conditions of a favorable foreign exchange market, the main emphasis when making the decision to maintain the current monetary policy setting was placed on the need to stabilize both inflation expectations and inflation on a more permanent basis, taking into account the risks. Namely, the domestic inflation in December 2023 equals 3.6% anually, with significantly reduced pressure from food and energy prices, as well as lower price pressures from less volatile categories, which complies with the monetary measures taken. In conditions of similar inflation trends in our country as in the euro area, the difference in annual rates is small. Consumers' inflationary expectations expressed in the European Commission's polls in December are also more moderate. The average domestic inflation rate reduced to 9.4% in 2023, in line with the expected rate of 9.5 However, the level remains above the historical average, and the risks regarding the future dynamics of prices still exist, which is contributed by the uncertainty arising from the prices movements on the world stock markets, as well as certain domestic factors. Therefore, it was assessed that further caution in the policies conduct is necessary, including policies that affect demand in the economy. Regarding the policy of the European Central Bank (ECB), at the last meeting in January, it was once again decided to keep the policy rate at the same level. 

The foreign exchange market is stable and the movements are favorable. At the end of December, the foreign reserves equaled Euro 4,538.5 million, which according to international standards and the indicators, is an appropriate level for maintaining the stability of the domestic currency exchange rate.  During the past year, foreign reserves recorded a growth, which exceeded expectations and is mainly the result of the relatively high interventions of the National Bank for the net purchase of excess foreign currency assets from the banking system. The favorable movements in the foreign market are the result of the reduced pressures from the energy crisis, and thus the lower demand from companies, the increased supply of foreign exchange from natural persons as a signal of confidence in the domestic currency, as well as the generally good foreign exchange liquidity of the banks. Regarding the last available external sector data for the period October - November 2023, they currently point to a slightly lower trade deficit for the last quarter of the year than the expectations according to the October forecast, with the performance on the foreign exchange market as of December 2023 also being more favorable.

In the third quarter of 2023, the real GDP growth amounts to 1.2% on an annual basis, which is in line with the October forecast round (growth of 1.1%). The high frequency data for the period October - November 2023 are currently in line with the expectations for accelerated growth in the economic activity in the last quarter of the year. Thus, in this period, a real growth of industrial output, total trade turnover and construction is observed, after the decline in the previous quarter, while in the real turnover in catering, an acceleration in the annual growth has been registered. Regarding the risks to growth, they are mostly downward for the next period and are primarily related to the increased geopolitical tensions.

In the monetary sector, according to the data as of December 2023, the deposit potential of the banks is growing more than expected, with a rate of 9.1%, and the credit support to the private sector continues to grow, but more moderately and amounts to 5.1%. 

In general, key macroeconomic indicators point to performance that corresponds to the expectations. However, the conditions for conducting the monetary policy are still uncertain and require further careful monitoring of the inflation dynamics and factors and inflation expectations, as well as caution in the conduct of macroeconomic policies that affect the demand in the economy. The National Bank remains prepared for using all the necessary instruments and take appropriate measures that will contribute to maintaining the stability of the exchange rate, stabilizing inflationary expectations and price stability in the medium term.