Today, the National Bank of the Republic of Macedonia Council held its fifteenth session, at which the Quarterly Report for the third quarter was discussed. Observed by individual macroeconomic indicators, during the third quarter changes in the overall domestic inflation were again most affected by the fall in world oil prices, leading to a decline in the domestic prices on an annual basis, which were lower than expected
Today, the National Bank of the Republic of Macedonia Council held its fifteenth session, at which the Quarterly Report for the third quarter was discussed. Observed by individual macroeconomic indicators, during the third quarter changes in the overall domestic inflation were again most affected by the fall in world oil prices, leading to a decline in the domestic prices on an annual basis, which were lower than expected. On the other hand, the food component and core inflation continued to grow moderately. In the real sector, the activity still grew at a solid pace, in line with April's expectations. The latest short-term indicators suggest growth in all key sectors of the economy, at a pace similar to that in the first half of the year, but significantly slower than expected in the April projections. Solid liquidity and capital position of the banking sector contributed to the increase in the supply on the credit market, which along with the demand growth contributed to further credit support to the private sector. In the third quarter, foreign reserves declined on a quarterly basis, mainly due to the regular repayment of external liabilities of the country. On the foreign exchange market, after the interventions with selling foreign currency in July, in August the National Bank purchased foreign currency, whereby the cumulative interventions in the period from July to August had an almost neutral effect. Since then the foreign exchange market has been stable, with no need for interventions through foreign reserves. All reserve adequacy indicators still point to an appropriate level of foreign reserves with enough room for dealing with possible shocks.The latest projections for 2015 and 2016 have changed downwards from 4.1% and 4.5% to 3.2% and 3.5%, respectively. Latest projections indicate a growth rate of around 4% in 2017. Within the baseline macroeconomic scenario, credit supply of domestic banks will continue to be an important factor supporting the consumption and investment decisions of the private sector. The propensity to borrow, i.e. the demand for loans is expected to increase further. The latest projections point to annual credit growth of 7.7% in 2015, similar pace of growth in 2016 and credit growth of around 8% in 2017. The latest projections for 2015 indicate a setting free of inflationary pressures. It is expected that inflation will remain at a similar level as in 2014, i.e it will be around zero on average. In 2016, the gradual opening of a positive output gap, given the steady growth of the domestic economy, and the expected increase of food and oil prices in the second half of the year will contribute to an increase in inflation to about 1.5% in 2016 and 1.6% in 2017. The inflation projection is accompanied by risks, mainly related to the movements in the world prices of primary products. The latest projections for the balance of payments show a smaller current account deficit, i.e. 0.5% of GDP for 2015, which due to the gradual recovery of the global and domestic economies in 2016 would reach 1.9% of GDP in 2016 and 2,4% in 2017. On cumulative basis, up to 2017, the latest forecast envisages a moderate growth of foreign reserves, still keeping the foreign reserves adequacy indicators in the safe zone, at a level that is sufficient to deal with possible unforeseen shocks. Overall, recent developments suggest maintaining of a similar macroeconomic landscape, with assessments for still solid economic and credit growth in the absence of price pressures and balance of payments position that ensures maintenance of foreign reserves at an adequate level. At today's meeting, the NBRM Council also discussed and adopted the Decision amending the Decision on the method of determining related entities. The main purpose of the amendments is the application of the recommendation contained in the Basel document on the supervisory framework for measurement and control of large exposures, according to which the bank does not have to determine a single risk if the bank's exposure to the entity is less than 5% of its own funds. Given that for a domestic commercial bank the credit exposure of 5% may be significant for the level of credit risk, it was prescribed that there is no need to determine a single risk if the bank's exposure to the entitiy is less than 2% of its own funds. The Council also discussed other matters within its jurisdiction.
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