The National Bank of the Republic of Macedonia Council held its first session
Today, the National Bank of the Republic of Macedonia Council held its first session at which the latest Quarterly Report was discussed, concluding that during the last quarter of 2016 CB bill interest rate decreased by 0.25 p.p., and at the beginning of January 2017 by additional 0.25 p.p., whereby this policy rate reduced to 3.5%. These decisions of the National Bank were result of the evident and continuous lasting several months stabilization of economic agents' expectations after the previously undertaken measures for dealing with the pronounced speculative pressures from the uncertain political environment in the second quarter, and amid further retention of estimates for stability of economic fundamentals.The key macroeconomic parameters in the domestic economy were generally moving within the October forecasting round. In the third quarter of 2016, gross domestic product registered an annual growth of 2.4%, whereby construction sector was again the driving force. General assessment is that the economy continued to grow throughout 2016, and the growth rate is close to the expected growth of 2.3% cited in the October projection. On cumulative basis, the economic growth for the first three quarters of the year amounted to 2.7%, compared to the expected growth of 2.1% in the projection. The projected GDP growth for the entire 2017 is expected to amount to 3.5%, and for 2018, 3.7%. Risks surrounding this macroeconomic scenario have not undergone significant changes compared to the October projections, and are mainly associated with the uncertain environment.Within the external sector, in the third quarter of 2016, performances indicate current account surplus of 1.4% of GDP, which is at level of expectations with the October projection. The balance of goods and services registered improved performances, while a slight negative deviation was registered in the balance of primary income. At the same time, the financial account registered high inflows of Euro 428 million, or 4.5% of GDP on a net basis, and mainly due to the external government borrowing. Foreign reserves remained at an adequate level throughout the year. Cumulative growth of foreign reserves is also expected in 2017 and 2018, as well as their retention in the safe zone, i.e. at a level appropriate for dealing with unforeseen shocks.In the third and the fourth quarter of 2016, headline inflation stood at minus 0.1%, leading to a fall of minus 0.2% in consumer prices for the entire year. Core inflation, which excludes food and energy, was positive throughout the year. In 2017 and 2018, headline inflation is expected to accelerate moderately to 1.3% and around 2%, respectively, but this projection is still accompanied by risks, mainly related to the movements in the world prices of oil and food, as well as to the growth of the domestic economy. Performances show that despite the increased risks associated with factors of domestic and external nature, the fundamentals of domestic economy remained solid in 2016. By the end of the year the foreign exchange market and deposits in the banking system, which were mostly affected by the political events of the second quarter, more than fully reversed the suffered outflows. The economy has been recovering at a solid pace, in part supported by the lending of the domestic banks, and that recovery takes place without price pressures and amid further maintenance of adequate level of foreign reserves. The risks to the economy are still assessed as unfavorable and are associated with the domestic political environment, and there are also external risks. Hence, the National Bank will closely monitor the developments in the coming period, while the future changes to the monetary policy will largely depend on the further stabilization of the domestic political environment, as well as on materialization of external risks.The Council also discussed other matters within its jurisdiction.
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