Today, the National Bank of the Republic of Macedonia Council held its eleventh session, at which the Quarterly Report for the third quarter was discussed. After the increase in the policy rate by 0.75 percentage points in the second quarter and undertaken additional monetary measures, during the third quarter of 2016, the National Bank made no changes in the monetary policy.
Today, the National Bank of the Republic of Macedonia Council held its eleventh session, at which the Quarterly Report for the third quarter was discussed. After the increase in the policy rate by 0.75 percentage points in the second quarter and undertaken additional monetary measures, during the third quarter of 2016, the National Bank made no changes in the monetary policy. Economic fundamentals were assessed as solid, given the absence of imbalances in the economy, but amid still present uncertainty, mainly associated with domestic political developments. The latest estimation for the economic growth in 2016 equals 2.3%, with inflation of 0%. This result is expected to be achieved in conditions of deficit on the balance of payments' current account of 2.1% of the gross domestic product. Within the current account, the balance in the trade of goods and services is favorable due to the narrowing of the energy deficit, amid lower energy prices on world markets and the effects of the new export capacities, while this year's performances with part of the traditional sector are more unfavorable. Moreover, this year also, foreign direct investments and external borrowing are the main sources of financing of the current account deficit. During the entire horizon, foreign reserves adequacy indicators have ranged within the safe zone.The latest forecasts for 2017 and 2018 point to acceleration of the economic growth and registering rates of 3.5% and 3.7%, respectively. For 2017, the current account deficit is expected to be 2.3%, and 2.6% for 2018. The growth of prices will accelerate moderately in 2017 and 2018, whereby the expected rates of inflation amount to 1.3% and around 2%, respectively.In 2017, the growth of domestic demand is expected to be derived from investments and private consumption and that it will have a greater contribution to the GDP growth than in 2016. For 2018, the stronger growth of both private and investment consumption is also expected to lead to continued growth of domestic demand. This corresponds to the expected solid credit support from banks, from 6.4% in 2017 and 6.7% in 2018. For the next two years, deposits in the banking system are expected to grow at a rate of 7.5% annually.For 2017 and 2018, the current account deficit is expected to be fully covered by financial flows, which will provide further accumulation of foreign reserves. Adequacy indicators of their level will remain within the safe zone. The risks to these expectations are mainly unchanged. Despite the undertaken positive steps in resolving domestic political challenges, there is still part of the uncertainty, and therefore adverse risks. External risks are again associated with the fragile global recovery, protectionist tendencies, volatility of financial markets, while the risk associated with the separation of Great Britain from the European Union is a new factor. Overall, recent developments suggest maintaining of a similar macroeconomic landscape, with fairly solid economic growth, absence of price pressures and balance of payments position that ensures maintenance of foreign reserves at the adequate level. Hence, the National Bank will continue to closely monitor the developments in the period ahead, and if necessary it will make appropriate adjustments to the monetary policy conduct for successful achievement of its goals. At today's session, the Council discussed and adopted the Decision on putting into circulation of banknotes in denominations of 200 denars and 2000 denars and the Decision on withdrawal from circulation of banknotes in denomination of 5000 denars. Determining the denominations of the national currency that will be put into circulation is a complex process, particularly the determination of the value difference between two denominations. Each country should occasionally review the existing denomination structure, in order to determine whether it is compatible with changes in the society and trends of the economic development and economic trends. The accordingly adjusted denomination structure is a relief to consumers, enabling unhindered cash transactions and reduction in the costs of the central bank. The strategic decision on the issue of banknotes in denominations of 200 denars and 2000 denars arose from the realistically perceived need to rebalance the existing denomination structure of the banknotes in circulation. The existing denomination structure of the banknotes which are in circulation from 8 September 1996 to this day has not undergone changes and the introduction of these two new denominations is the first change that is implemented after a period of 20 years. This decision was made based on researches and analyses of all existing factors, whereby it was determined that there are real needs for the introduction of both new denominations. The introduction will increase the supply of denominations that are available when carrying out cash transactions, and balancing the demand for certain denominations is expected as a secondary effect. In order to adequately include the new denominations in the cash operation system and for unhindered cash transactions, their putting into circulation is scheduled for 15 December 2016. Meanwhile, the time period from the arrival of the banknotes to their putting into circulation will be used for education and introduction with the main features and security elements of the banknotes to staff in banks and other financial institutions. It is also a time allowing implementation of activities for adjustment of the software models of the banknote processing machines, ATMs and other unattended terminals, thus enabling unrestricted circulation of the new denominations. Experience shows that, in certain cases, it is necessary to eliminate some of the denominations in order to make the structure of denominations more compact. For making such a decision, it is necessary to follow two indicators, such as: the demand for that denomination and the time period in which that denomination is active in circulation. The banknotes in denomination of 5000 denars are not accepted by the public because of their high nominal value, the share in the performance of cash transactions and exchange, primarily in trade, is limited. Their use in everyday transactions is insignificant. Banks show no need for banknotes in this denomination, and instead of an annual increase in their quantity in circulation, it steadily decreases and therefore they will cease to be a legal tender on 15 December 2016. Commercial banks in the Republic of Macedonia will replace the banknotes in denomination of 5000 denars from 15 December 2016 to 28 February 2017, and from 1 March 2017 their replacement will be carried out by the National Bank of the Republic of Macedonia. The Council also discussed other matters within its jurisdiction.
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