On 13 November 2018, the NBRM's Operational Monetary Policy Committee held its regular meeting and discussed the developments on the international and domestic financial markets and the situation and the indicators of the domestic economy in the light of the monetary policy setup.

After the easing of the monetary policy in August 2018, at the November meeting, the Committee assessed that the current monetary setup is adequate, and decided to keep the interest rate on the CB bills at the level of 2.75%. At the meeting, the Committee also decided, at the auction on 14 November, to keep the offer of the CB bills at the level of Denar 25,000 million.

The Committee reviewed the latest developments in the domestic economy in the context of the recent October macroeconomic forecasts, again confirming the perceptions that the economic fundamentals are sound, without any imbalances in the economy, evident through the stable inflation performances and the further favorable developments on the foreign exchange market. The dynamics and currency structure of household savings continues to point to stable expectations and favorable perceptions. At the same time, the risks to the economy coming from the uncertain domestic and external environment are still present.

Regarding the recent macroeconomic indicators, after the economic growth of 1.6% in the first half of the year, the so far available high frequency indicators for the economic activity generally point to a -conclusion that the developments are similar as in the second quarter of the year. This conclusion is supported by the data on the growth of both industry and trade, amid still negative performances of construction activity.

October inflation data indicate continuity of the current developments, with average annual growth rate of consumer prices in the period January-October of 1.5%, driven mostly by core inflation and energy prices. The number of the external sector indicators is limited, and so far the available data point to a favorable external position. Foreign reserves adequacy indicators continue to hover in the safe zone.

The initial monetary data for October show a solid monthly increase in total deposits in the banking system. Positive developments mostly reflect the growth in corporate deposits, and a positive, but smaller contribution was also made by household savings. In October, the monthly growth of loans continued, but at a more moderate pace, whereby most of the growth stems from lending to households.

In the period between the two monthly meetings of the Committee, the favorable liquidity position in the banking system was maintained, primarily due to the further NBRM interventions for purchase of foreign currency in the amount of Euro 50.2 million in October. The presence of the NBRM with purchase of the excess foreign currency on the foreign exchange market is related to the stable external liquidity of banks, which is still solid and fully realizes the net sales of foreign currency for the needs of the customers.

The increased offer of foreign currency on the interbank market was additionally influenced by the adjustment of the foreign exchange positions of banks in conditions of increasing their investments in financial instruments with FX component. The favorable developments on the interbank foreign exchange market are maintained also at the beginning of November, so that the NBRM continued to intervene with purchase of the excess foreign currency. Given these performances, the cumulative purchase of foreign currency of the NBRM since the beginning of the year as of 12 November amounted to Euro 298.1 million. 

During October, banks regulated the short-term fluctuations in the denar liquidity on money markets, and the excess denar assets was placed in the overnight deposit facility with the NBRM. This enabled flexible asset management and their availability for fast mobilization due to increased credit support to economic agents.

In October, the international financial markets registered variable movements amid increased aversion for taking risks by investors, in conditions of uncertain outcome with respect to the activities related to the budget policy in Italy, as well as the moderately less favorable macroeconomic indicators for the euro area. In addition, the estimates for a more moderate global growth in the next period by the International Monetary Fund, as well as the downward adjustment of the forecasts by the European Commission, indicated a possible slowdown in the economic activity in the euro area also in the next year. In such circumstances, there was a reduction in the world stock exchanges, and amid increased demand for safe instruments the prices of the European government debt securities rose. Investors’ expectations for maintaining the supply of oil at a relatively high level, despite the sanctions imposed by the United States on the Iran's exports, lowered oil prices which reduced to the lowest level in the last two months.

Overall, at the meeting of the Committee it was concluded that the latest macroeconomic indicators are generally in line with the expectations, and the perceptions for the environment for monetary policy conduct are mainly unchanged compared to the previous assessment. In the period ahead, the NBRM will closely monitor all economic indicators and developments in the domestic economy and the external environment in the context of the monetary policy setup.