The National Bank of the Republic of Macedonia Council held its regular session
26.07.2018
The National Bank of the Republic of Macedonia Council held its regular session today, where it has discussed and adopted the latest Quarterly Report, emphasizing once again that after the monetary policy relaxation at the end of the first quarter, the key interest rate remained unchanged at the level of 3.00 %. On the foreign exchange market, the movements were favorable also in the second quarter of the year, with the NBRM further intervening with net purchase of foreign currency from the market makers. In the second quarter, the foreign reserves increased, and according to all adequacy indicators, they are still maintained in the safe zone. Favorable developments have been registered in the banks’ deposit base, whose growth accelerates in this period.
When reviewing the Report, it was concluded that as for the sources of risks, no major changes compared to April's perceptions were stated. However, the risks from the external environment during the quarter were assessed as slightly less favorable, mainly due to the uncertainty about the effects on global economic growth from the growing trade protectionism and the intensified growth of the oil price on the world stock markets. The risks related to the domestic environment were assessed as less pronounced compared to the previous period.
At the session, certain divergence was noted, if compare the latest macroeconomic indicators of the domestic economy with their projected dynamics within the April projection cycle. This primarily refers to economic activity, given the initial data on GDP in the first quarter of 2018. At the same time, it was emphasized that although the data for the second quarter are not numerous, they are divergent, mainly pointing to a somewhat more favorable situation in the economy, compared to the first quarter.
In the period April - June this year, the inflation rate equaled 1.5%, on average, on annual basis, mostly as a result of the increase in the core inflation, with the food and energy component also having a positive contribution.
The Report states that the inflation in the second quarter of the year is below the expectations for the quarter within the April projection, which together with an upward revision of the expectations for import prices, suggests balanced risks for the projected inflation for 2018.
The data on the external sector presented in the Quarterly Report, viewed through the position of the balance of payments, point to the absence of imbalances and relatively favorable external position of the economy. In the first quarter, the current account deficit remained relatively low and accounted for around 1.5% of GDP. On the other hand, the net inflows within the financial account reached about 4% of GDP, which is more favorable compared to April expectations. These movements in the balance of payments lead to an increase in the foreign reserves in the first quarter, which continued in the second quarter of the year, given favorable movements on the foreign exchange market and net purchase of foreign currency by the NBRM.
When discussing the Report, it was stated that during the second quarter of this year, the lending activity of the banking sector increased, with the household sector having greater contribution to the growth of the activity on the credit market. At the same time, the lending to the corporate sector was also solid and it had large contribution to the quarterly change in the activity on the credit market. On annual basis, the credit growth reached 6.3% at the end of the second quarter of the year.
With regard to the sources of financing, the deposit base registered an accelerated growth, as well. The annual growth of total deposits reached 10.5% at the end of June, which is also above the last projection of 7.4%. The growth acceleration in the deposits in the second quarter arises from the corporate deposits, with further positive contribution of household deposits. It is expected that the positive trends in the banks’ deposit base will continue in the next period, providing stable sources to finance the credit growth, which, according to the April projection, would range between 6.5% and 7.7% in the next two years.
At the session it was concluded that despite that the latest macroeconomic indicators and assessments of certain segments suggest certain deviations from the forecast dynamics, for now, they fail to cause major changes in the perceptions for the monetary policy environment. The banks’ credit activity is expected to further support the domestic economy, in the absence of inflationary pressures and maintaining a favorable external position, which will enable maintenance of foreign reserves in the safe zone. At the same time it was emphasized that the NBRM will continue to closely monitor the developments in the domestic economy, especially in the external environment, as a source of potential risks, due to the timely and appropriate adjustment of the monetary policy for successful achievement of the monetary goals.
The Council has also discussed other matters within its jurisdiction.