1.   Design of monetary policy


The National Bank of the Republic of Macedonia (NBRM) is a central bank, with a primary objective to maintain price stability, and independent in the performance of its functions. NBRM has supported the economic policy and the financial stability of the country, without jeopardizing the accomplishment of its primary objective, by observing the market economy principles. NBRM, in line with its legally set functions, designs and conducts its monetary policy. At the end of the current year, NBRM, within the previously defined macroeconomic policy framework, prepares a Monetary Development Projection for the following year, which is subsequently adopted by the NBRM Council.

2.      Monetary policy objectives

Maintenance of price stability is a primary objective of the National Bank of the Republic of Macedonia specified by law. Establishment of this objective is in line with the empirically confirmed findings that price stability creates the most favorable macroeconomic environment for economic development sustainable on a long run. To the end of 1999, inflation in the Republic of Macedonia was measured through the retail price index, and since 2000 is has been monitored through the consumer price index. For achieving its ultimate objective, NBRM has established an intermediary target of its monetary policy. Thus, from April 1992 to September 1995, NBRM applied the strategy of targeting the money supply M1, as an intermediary objective of the monetary policy. In October 1995, NBRM started implementing the monetary strategy of targeting the nominal exchange rate of the Denar against the Deutsche Mark, and since January 2002 - against the Euro. Accordingly, intermediary objective of the monetary policy is the maintenance of Denar exchange rate stability. Implementation of exchange rate targeting strategy results from a/ the significance of exchange rate in a small and open economy; b/ the need of nominal anchor for maintenance of credibility; c/ the high level of euroization, and d/ the transparency of the exchange rate policy and possibility to be daily monitored by economic agents.

3.      Interest rate policy and transmission mechanism

When the monetary policy is focused on maintaining Denar exchange rate stability, the interest rates and money supply are dependent categories, determined by the achievement of intermediary objective. NBRM, through its interest rate policy, sends monetary signals to banks, and thus, tends to influence on their lending and deposit interest rates. Currently, the interest rate achieved at the CB bills auctions is regarded as basic NBRM interest rate. dlcons.