On 12 January 2016, the NBRM's Operational Monetary Policy Committee held its regular meeting and discussed the situation in the Macedonian economy and the countries of the region, the developments on the international and domestic financial markets and the domestic economy indicators
On 12 January 2016, the NBRM's Operational Monetary Policy Committee held its regular meeting and discussed the situation in the Macedonian economy and the countries of the region, the developments on the international and domestic financial markets and the domestic economy indicators in the light of the monetary policy setup.
The assessment of the economic and financial conditions showed that the current monetary policy setup is adequate and the Operational Monetary Policy Committee decided the CB bills offered at the auction to be in the amount of Denar 25,500 million, at an unchanged interest rate of 3.25%.
The latest indicators suggest that the economic activity continues to grow at a solid pace, supported in part by the lending of domestic banks. Economic recovery takes place in the absence of price pressures, neither pressures in the external sector. Foreign reserves are still at an appropriate level, sufficient to cope with any unforeseen shocks in the future. Regarding the effects on the domestic economy that relate to the domestic political developments, it is assessed that they are limited. Yet, uncertainty can still be observed in the surrounding, therewith creating risks for the period ahead. Against such background, leaving the zone of accommodative monetary policy in the next period will depend on the further stabilization of domestic political environment and its effects on the economy, as well as on the changes in the external position and the effects on foreign reserves.
The latest macroeconomic indicators do not reveal major changes in the monetary policy setup. In real sector, favorable trends continue. After the GDP growth of 3.5% in the third quarter, the latest available indicators for the last quarter show that these trends continue, which is particularly evident in industry, trade and construction. The economic growth is in line with the October expectations. However, despite these favorable developments, the uncertain global recovery, particularly unfavorable conditions in the global metals market and the uncertainty due to domestic political developments, remains to pose risk that may affect the pace of the future recovery.
The data on the inflation, as of December, show annual decrease in the general price level of the domestic economy of 0.3%, on average. In conditions when even food prices and core inflation, on the average for the entire year, are mounting, the price drop is due to the decline in energy prices. The performances are somewhat below projections, and taking into account the expectations of lower world energy and food prices, indicate downward risks to the inflation projection for the following period. Frequent changes in the expectations about the prices of primary products indicate significant uncertainty about the future movement of these products and high possibility of sudden changes in these categories.
In the third quarter, the foreign reserves registered an increase, which is mostly due to the Government's borrowings on the international market by issuing Euro bond. The rise in the reserves is just smaller than projected, but the deviations are small, while the foreign reserves adequacy indicators remain in the safe zone. The foreign exchange market has been relatively stable for a longer period. The available indicators of the external sector show that the trade deficit and remittances, as key components of the current account, for now move within the projections.
In December, the banks' liquidity remained relatively stable and high. In such circumstances, the banks placed part of the excess funds in deposit facilities with the National Bank, while the trading on the money market registered a moderate decline on a monthly basis. On the foreign exchange market, usual seasonal increase in the client's demand for foreign currency was registered. On the backdrop of intensified demand and moderate decrease in the banks' net foreign currency position in the first half of the month, the foreign exchange rate registered moderate upward trend, with part of the demand being compensated through the National Bank interventions. By increasing the offer at the end of the month, mainly as a seasonal effect of higher offer on the currency exchange market, the trend of the exchange rate of the interbank transactions was downward until the end of the year.
Regarding the credit market, the preliminary data for December show strong monthly growth of total loans to the private sector, with credit support being directed more to the corporate sector and less to household sector. Thus, loans to the private sector continued to grow at a solid annual growth rate, which is higher than expected in the October projection.
The credit support to the corporate sector that was presented in December is expected to continue in future, partly supported also by the latest measures taken by the NBRM and which are targeted and macro prudential. Thus in December, a set of measures was adopted, which should contribute to limit the risks of high increase in the long-term consumer loans on the financial and macroeconomic stability, on the one hand and facilitating the access to finance for the corporate sector and more efficient credit risk management by the banks, on the other.
In December, high monthly increase in total deposits, supported by corporate and household deposits was registered, where a higher growth in Denar savings is evident. December performances of deposits contributed to increased savings in banks relative to the projections in October, which together with the greater propensity for saving in denars, indicate certain stabilization of the expectations of economic agents.
Contrary to market expectations for a stronger divergence in the monetary position in the euro area and the USA, the ECB adopted a decision on more moderate monetary easing than expected. On the other hand, the Federal Reserve, as expected, increased the key basic interest rate. However, the consequences of changing the course of monetary policy in the US are still uncertain about other countries and global financial markets, where downward risks dominate, including the risks of the fall in oil prices. At the beginning of the year, the markets were under the impact of the decline in stock exchange prices in China, which reflected on the movements of stock markets in both developed and developing countries. The concerns of investors about the growth of the Chinese economy and moderately increased geopolitical risks lead to a general increase in risk aversion.
Generally, recent developments suggest similar macroeconomic environment as projected in October, with assessments for solid economic and credit growth, absence of price pressures and balance of payment position that ensures maintenance of foreign reserves at an adequate level.
The fundamentals of the economy remain solid. The risks arise from external and uncertain domestic environment. Exogenous factors remain associated to the possible changes in the recovery pace of the global economic growth, as well as to the movements in the prices of primary products in world markets. In terms of domestic risks, although their impact has been relatively small and limited so far, the possible delay of the political-related uncertainty leads to the possibility of its spill over into the economy because of the bigger restraint of both domestic and foreign entities. However these risks are mitigated by the measure of the NBRM adopted in August. It introduced changes in the setup of the reserve requirement instrument, which were aimed at further support to the long-term savings in domestic currency, and thus support the process of "denarization" of the economy.
The NBRM will continue to closely monitor the developments in the period ahead, and if appropriate, will make adjustments to the monetary policy aimed at successful achievement of the monetary policy objectives.