On 8 November 2016, the NBRM's Operational Monetary Policy Committee held its regular meeting and discussed the situation in the domestic economy, the developments on the international and domestic financial markets and the indicators of the domestic economy
On 8 November 2016, the NBRM's Operational Monetary Policy Committee held its regular meeting and discussed the situation in the domestic economy, the developments on the international and domestic financial markets and the indicators of the domestic economy in the light of the monetary policy setup.
At the meeting it was assessed that the monetary setup is adequate and on 9 November it was decided to hold the CB bills auction under unchanged conditions i.e. to offer CB bills in the amount of Denar 22,000 million at interest rate of 4%.
The Committee reviewed the latest developments in the domestic economy in the context of the recent macroeconomic projections, emphasizing once again that the economic fundamentals are sound, without any imbalances in the economy.
After economic growth of around 2% in the first half of the year, all of the available macroeconomic indicators so far point to further economic growth in the third quarter at a similar pace.
In terms of inflation, after the several month decrease in consumer prices, the average annual rate in September and October was moderately positive and amounted to 0.2% on average, caused by the rise in core inflation. Regarding the external sector indicators, the available data show a moderate current account deficit of around 1% of GDP in the first eight months of the year, financed also through debt flows, as well as through inflows in the form of direct investment. Concerning the foreign reserves adequacy, all indicators remain within the safe zone.
The foreign exchange market in October continued registering positive trends that were characteristic for this market segment over the summer. Namely, during the month, the companies registered increased supply of foreign currency, with a simultaneous decline in demand. Better performance can be observed also on the banks' foreign exchange market with natural persons, amid stabilization of the demand and further increase in the supply of foreign currency. According to the October data, the banks again realize net purchase of foreign currency from natural persons, which exceeded the short-term effect of the completed sales of foreign currency to natural persons in April - May 2016. Better developments on the foreign exchange market in October enabled maintaining high foreign currency liquidity of banks and channeling the surpluses of foreign currency to the National Bank, which again intervened by buying foreign currency from the market makers in the total monthly amount of Euro 17 million. Thus, and given that this trend also continues in November, the total purchase of foreign currency since July reached Euro 105 million, compensating over 80% of the sales in the period from April to May. The interventions on the foreign exchange market contributed to further improvement of the banks' denar liquidity, which increased the investments in short-term monetary instruments.
At the meeting it was concluded that the foreign exchange market continued registering positive trends, and in October, the fifth consecutive month, the NBRM buys excess foreign exchange from banks thus replenishing international reserves. Preliminary October data show further stabilization of the expectations of economic agents, as seen by the growth of household savings in the banking system, registering also growth of savings in domestic currency.
According to initial monetary data, total deposits in the banking system in October register solid monthly growth, and the annual growth is 4%, which points to further recovery of the deposit base. Households and corporate sector also contributed to the positive developments in deposits. On the credit market, after growth in September, there was a slight monthly decline in lending activity in October. Analyzed by sectors, lending to households continues to grow, while the credit flows to the corporate sector decreased. Since the beginning of the year, the credit flows have registered an increase, which is solid and in line with expectations.
In October, the international financial markets registered increase in yields on debt securities, amid perceptions for a review of the monetary policy of the central banks, given moderate inflation growth compared to current levels. The market participants were focused on expectations about the outcome of the US presidential election and the uncertainty about the UK exit from the EU, which led to volatile movements.
At the meeting it was assessed that the uncertainty associated with the domestic political upheavals and the global surrounding is still present. The above creates the need for continuous monitoring of the performance and regular reassessment of risks and their relevance in the context of achieving monetary goals.
The NBRM will continue to closely monitor the developments in the period ahead, and if appropriate, it will adjust the monetary policy for successful achievement of the monetary objectives.
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