Regular meeting of the Operational Monetary Policy Committee of the National Bank

Skopje, 10 November 2021 

On 9 November 2021, the National Bank Operational Monetary Policy Committee held its regular meeting and discussed the developments on the international and domestic financial markets and the indicators of the domestic economy in the context of the monetary policy setup.

 At the meeting, the Committee assessed that the current level of the key interest rate is appropriate to the macro economic and financial conditions and decided to retain it at the level of 1.25%.  As a result, the monetary policy remained relaxed, contributing towards support to the credit flows in the economy. At the session, it was reassessed that having no demand pressures, the moderate upward inflation movements inflation are temporary and for now driven by factors on the supply side. Therefore, for the time being, there is no need for a monetary reaction to these price movements, although there is a need for close monitoring of the inflation. The Committee also confirmed that the current banking system liquidity is appropriate to the market developments and decided to offer the same amount of Denar 10 billion at today’s CB bill auction.

According to the latest available macroeconomic indicators for economic activity, in the first half of the year the gross domestic product grew by 5.2%, while the current estimates for the third quarter of 2021 point to further but more moderate growth of economic activity in this period, evident through the available high frequency data, primarily in the area of private consumption. The economic recovery would continue in the next period, with growth rates of 3.9% for this and next year and would gradually reach 4% in the medium term.

Regarding the inflation movements, in the period January - October, the annual price growth equaled 2.9%, on average. For now, it is estimated that price pressures are mainly related to factors on the supply side, without greater demand pressures. Thereby, the uncertainty and variability in the movement of world prices of primary products, primarily energy, in the next period is emphasized, because of which they should be monitored closely. According to the latest forecast, which incorporate the assumptions for more significant growth of import prices during this year, domestic inflation would remain moderate and in a controlled range and would amount to 3.1% and 2.4% in 2021 and 2022, respectively, so it would gradually decrease to the historical level of about 2% in the medium term.

 Foreign reserves remain appropriate and in the safe zone. Since the beginning of the year, foreign reserves have registered an increase. The assessments for the external position of the economy, according to the performance so far, remain favorable within this projection cycle, as well. However, the latest estimates point to a slightly larger current account deficit, especially during 2021 and 2022, due to import pressures which are higher than expected, and a larger effect on the balance of payments from growing energy prices. Within the latest forecast, it is expected that the current account deficit of the balance of payments will moderately deepen in 2021 to 3.8% of GDP and will remain at the same level in 2022, after which it would be around 2% of GDP in the medium term.

Regarding the movements in total deposits and total loans, the initial data as of October 2021 show their further solid annual growth, and according to the latest estimates, this favorable trend would continue in the next period, with an average annual growth of deposits and loans of 7.4% and 7.0%, respectively, in the period 2021 - 2023.

 On the foreign exchange market, there was an upward trend in market activity, which corresponds to the external economic environment of the domestic economy. In October, the banks met the increased demand for foreign currency mostly from their own foreign assets, and partly through interventions of the National Bank for sale of foreign currency.

 In October, the focus of the participants in international financial markets was the global inflation dynamics, expectations for the imminent announcement of the FED to tighten monetary policy in the United States and increased perceptions for withdrawal of the monetary stimulus worldwide. In such circumstances, the prices of government bonds issued in the euro area and in the United States continued to decrease (their yields increased), and the value of the US dollar against the euro continued the trend of moderate growth.

In general, at the session it was concluded that the movements in the basic macroeconomic parameters mainly meet the expectations, and the latest forecast does not indicate major change in the macroeconomic setting compared to previous assessments. The uncertainty related to COVID-19 pandemic persists, while the risks are more pronounced and largely downward. Hence, the National Bank continues to carefully monitor the developments and risks in the domestic and external environment, in order to adequately adjust the monetary policy setup.