On 15 September 2015, the NBRM's Operational Monetary Policy Committee held its regular meeting and discussed the situation in the Macedonian economy and the countries in the region, the developments on the domestic and international financial markets and the latest macroeconomic indicators in the light of the monetary policy setup.
On 15 September 2015, the NBRM's Operational Monetary Policy Committee held its regular meeting and discussed the situation in the Macedonian economy and the countries in the region, the developments on the domestic and international financial markets 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 being maintained at an appropriate level, sufficient to cope with any unforeseen shocks in the future. The risks for the domestic economy associated with the domestic political developments and the economic and political developments in Greece have declined recently, and their effects continue to be assessed as limited and mainly realized through the expectations channel. Uncertainty in the surrounding is still present, yet lower. Against such background, leaving the zone of accommodative monetary policy in the next period will depend on the changes in the external position of the economy and the effects on foreign reserves.The latest macroeconomic indicators do not point to major changes in the monetary policy setup. In the second quarter, the GDP registered an annual growth of 2.6%, indicating moderately slower growth pace compared to the first quarter of the year, which is in line with the April projections. Analyzing the factors of growth, in the second quarter of the year, the positive contribution of net exports intensified (in the first quarter, net exports also made positive contribution), while the contribution of domestic demand is moderately negative, resulting from the annual decline in gross investments. However, the high frequency data point to solid trends in construction, which is reflected in the contributions of individual sectors to the growth. Thus, observing production, growth is dispersed, with the largest contribution made by services - trade and transport, construction and financial activities. High frequency data on real sector trends for the third quarter of the year suggest continuation of these trends in the third quarter. However, the risks of any extension of the effects of the domestic and external developments may affect growth in the second half of the year. The general price level in August registered a trivial annual growth, primarily due to higher food prices and core inflation, amid further reduction of energy prices. On average, in the first eight months of the year, the general price level in the domestic economy shrank by 0.3% on an annual basis. So far, inflation is assessed to be as projected. Recent assessments of external assumptions compared to the April projections, indicate expectations of slightly lower global prices of energy and food products. Frequent changes in the expectations about the prices of primary products indicate significant uncertainty about the future movement of these products and high possibility of sudden changes in these categories.According to the latest available data for the third quarter of 2015, foreign reserves declined. Analyzing the factors of change, the decline in reserves during this period was primarily due to the regular settlement of external liabilities by the government, and less to the net sales of foreign currency on the foreign exchange market by the NBRM. Developments on the foreign exchange market in August were stable, under the influence of seasonal factors. Foreign exchange position of banks remained relatively high, whereas in the first half of the month, the National Bank intervened by purchasing foreign currency from market makers. The annual comparison shows that the foreign exchange market developments have improved relatively, with dominant contribution of new production facilities that cause the maintenance of higher supply of foreign currency in the domestic economy. Also, reduced import of energy (oil and electricity) acts towards lower demand for foreign currency. Analyzing external sector indicators, the only available data for the third quarter are those on foreign trade in July and on net purchase of foreign currency in August, which for now suggest movement within the projections. The analysis of foreign reserves adequacy indicators shows that they continue to move within the safe zone.The liquidity of banks increased in August under the influence of autonomous factors, wherefore the banks showed an increased interest in placing excess liquid assets in the NBRM. The trading volume on money markets was high, enabling efficient bank liquidity management and keeping interest rates relatively stable. Regarding the credit market, the initial data for August show a further increase in the total loans to the private sector, with same dynamics as in the previous month, which is not uncommon for this time of year. The annual growth rate of total loans in August was 8.8%, which is lower compared to the projection of 9.8% for the third quarter. In terms of the deposit potential, preliminary data as of August show its increase, resulting from the growth of corporate deposits. Total deposits as of August are lower than projected, so at the end of August, total deposits increased by 6.7% on an annual basis, while the projection for the end of the third quarter envisages growth of 9.5% annually.The international financial market developments in August were influenced by the developments in China and the uncertainty about the beginning of normalization of interest rates by the Fed. In the euro area, the European Central Bank continued to implement expansionary monetary policy, which coupled with other incentives, had a positive impact on the movement of lending activity. However, amid expectations for slower growth of economic activity in the period ahead, mainly due to the slowdown in emerging economies, with impact on the global demand and exports from the euro area, the ECB announced a possibility for extension of the deadline for implementing the securities purchase program after September 2016.Generally, in the period since the latest April projections, due to domestic and external risks, the environment was uncertain and unstable, yet in the recent period the uncertainty has reduced. For now, the latest macroeconomic indicators and assessments do not point to major changes in the environment for conducting the monetary policy. The fundamentals of the economy remain solid. Foreign reserves adequacy indicators remain within the safe zone. Economic growth is solid and there are no price pressures. Credit market developments have been generally favorable for a longer period of time, suggesting relatively efficient transmission of the monetary measures undertaken so far on the credit activity and more stable expectations of domestic banks. In terms of deposits, changes were made in the setup of reserve requirement instrument in August, which are expected to continue the trend of long-term household savings in domestic currency and create room for accelerating banks' lending activity. The latest data on the currency exchange market show stabilization of expectations and so far confirm the conclusion about limited and temporary effects of domestic political developments and developments in Greece on the domestic economy.However, there is still an ongoing uncertainty, so the NBRM will continue to monitor closely the future macroeconomic developments and the possible materialization of risks and will accommodate the monetary policy accordingly.
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