On 10 November 2015, the NBRM's Operational Monetary Policy Committee held its regular meeting
On 10 November 2015, the NBRM's Operational Monetary Policy Committee held its regular meeting and discussed the situation in the domestic economy, the developments in the international and domestic financial markets, the developments in the banking system and the latest macroeconomic indicators in the light of the monetary policy setup.
The assessment of the economic and financial conditions showed that the current monetary policy setup is adequate and the Operational Monetary Policy Committee decided the CB bills offered at the auction to be in the amount of Denar 25,500 million, at an unchanged interest rate of 3.25%.The latest indicators suggest that the economic activity continues to grow at a solid pace, supported in part by the lending of domestic banks. Economic recovery takes place in the absence of price pressures or pressures in the external sector. Foreign reserves are still at an appropriate level, sufficient to cope with any unforeseen shocks in the future. The effects on domestic economy associated with the domestic political developments and the economic and political developments in Greece are considered limited, and mainly materialized through the expectations channel. Yet, uncertainty can still be observed in the surrounding, therewith creating risks for the period ahead. Against such background, leaving the zone of accommodative monetary policy in the next period will depend on the further stabilization of domestic shocks and their effects on the economy, as well as on the changes in the external position and the effects on foreign reserves.The latest macroeconomic indicators do not reveal major changes in the monetary policy setup. In the real sector, high frequency data suggest continuation of the current pace of economic growth in the third quarter. Despite the solid growth rate, amid less favorable global environment, unfavorable conjuncture in the metal market and uncertainty created by the domestic political context, it is estimated that it is unlikely that the economy will grow in the coming period at the pace expected in the April projections. The general price level in October stagnated on a monthly basis given the drop in food prices, while energy prices and core inflation surged. On average, in the first nine months of the year, the general price level in the domestic economy shrank by 0.3% on an annual basis, due to the fall in prices of energy component. In October, inflation was lower than projected. These performances, along with the new expectations for lower world prices of energy and food products, show that inflation will be lower than expected in April. Frequent changes in the expectations about prices of primary products indicate that the uncertainty about future movement of these products is significant, and the possibility of sudden changes in these categories is high. According to the latest available data, the foreign reserves in October and November registered no major changes, the foreign exchange market has been stable for a longer period of time and the NBRM has not intervened with sale/purchase of foreign currency. Available external sector indicators show lower current account deficit than previously expected, and better performances in all of its components. The assessment of financial account indicates that inflows in the next period will be a combination of debt and non-debt flows, and this position of balance of payments ensures maintenance of foreign reserves in the safe zone.In October, banks' liquidity declined under the influence of autonomous factors, which decreased the banks' demand for monetary instruments. Amid lower liquidity, banks actively traded in money market deposits, with relatively high commercial activity being registered in the secondary securities market. On the foreign exchange market, the relatively improved performance of the corporate sector and the purchase of foreign currency from natural persons have contributed to the significant improvement of the banks' currency position and favorable movements in the exchange rates. Initial credit market data for October show further monthly growth of total loans to the private sector, with credit support to the household sector. Loans to private sector continued to grow at a solid annual rate of growth, but slower than projected. Analyzing deposits, preliminary data as of October show that they have increased, mainly due to the growth of corporate deposits, while household deposits remain almost unchanged. Performances of total deposits as of October show significantly lower growth than projected. Such movements of deposits indicate potential effects of the recent domestic and external shocks on savings. Downward deviations in this segment show slower credit and deposit growth compared with the April projection, amid estimates of slower than expected economic recovery. The developments on the international financial markets in October remained under the influence of the monetary policy decisions of the leading central banks for the future. Inflation performance and other monetary indicators for the euro area indicate the need for further easing of credit standards by reducing the ECB deposit interest rate or by continuing the purchase of securities at a predetermined date, increasing the monthly amount of the purchase or extending the types of securities that have been redeemed. On the other hand, given the stabilization of global financial markets, it becomes clear that in the December meeting, the Fed will decide to raise interest rates, therewith starting the cycle of gradual tightening of monetary policy. Overall, recent developments suggest similar macroeconomic landscape as projected in April, with assessments for slightly slower, yet solid economic and credit growth, absence of price pressures and balance of payment position that ensures maintenance of foreign reserves at an adequate level. The fundamentals of the economy remain solid. Risks have arisen from both the external and the uncertain domestic environment and are more pronounced than previously projected. Exogenous factors are still attributable to the possible changes in the pace of recovery of the global economic growth, as well as to the movements in the prices of primary products in world markets. Although the impact of domestic risks has been relatively insignificant and limited, any prolongation of uncertainty related to political developments tend to spill over into the economy because of the greater restraint of domestic and foreign entities. However, some risks have been mitigated by the last measure of the NBRM taken in August. This measure, which made changes in the reserve requirement instrument, aims to support further the long-term savings in domestic currency, and accordingly, the process of "denarization" of the economy.The NBRM will continue to closely monitor the developments in the period ahead, and if appropriate, will make adjustments to the monetary policy aimed at successful achievement of the monetary policy objectives.
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