Policy rate increased by 0.5 percentage points to a level of 3.50%.

 Skopje, 12 October 2022

On 10 October 2022, the National Bank Operational Monetary Policy Committee held its regular meeting. The Committee discussed the latest data and information on the domestic and global economy and the latest developments on the international and domestic financial markets.  

At its meeting, the Operational Monetary Policy Committee decided to increase the interest rate on CB bills by 0.5 percentage points to a level of 3.5%. The supply of CB bills at the regular auction remains unchanged at the amount of Denar 10 billion. The Committee decided to increase the interest rates of available overnight and seven-day deposit facilities, also by 0.5 percentage points. At the decision making, special attention was paid to the upward inflation movements, which accelerated again in September, solely due to the food and energy component. Moreover, given the monetary strategy of a stable exchange rate of denar against the euro, the changes in the domestic monetary policy reflect the changes in the monetary policy of the European Central Bank.

As of the end of the last year, the National Bank started with the process of gradual normalization of the monetary policy in order to maintain the medium-term price stability. This was done through adequate liquidity management, as well as with a gradual increase of the policy rate. Such monetary setup was also supported by additional measures, i.e. by changes in the reserve requirement aimed at reducing the euroization, as well as by systemic measures, i.e. introducing a countercyclical capital buffer of 0.5%, which further strengthens the protective mechanisms in the banking system. It is expected that the increase of the policy rate, together with the changes made to the rates of allocating reserve requirement which are more favorable compared to domestic currency, will continue to affect interest rate policy of the banks and will stimulate savings in denars.

The latest data show annual inflation rate of 18.7% in September, or an average annual inflation of 12.4% in the period January-September 2022. Domestic inflation remains mostly determined by external factors, i.e. by the increase in the import prices of food and energy sources, including the domestic price of electricity and heating, which are affected by the developments on the global energy market. For these reasons, around 80% of the annual inflation rate in September, i.e. 75% of the inflation in the first nine months of the year, are due to the growth in prices of food products and energy. Given the long-term pressures from these prices influenced by the unpredictable external factors and their transmission effects on the prices of other products and services, the inflation expectations of economic agents are raising.  Therefore, there is a need for conducting prudent domestic policies in order to carefully manage the demand. Although more pronounced downward adjustments in the food prices are already visible on the world stock markets, the upward pressures from electricity prices impede, i.e. slow down the transmission of these trends on the prices of food on the domestic market. This is also affected by the uncertainty about the future dynamics of primary commodities prices on the world stock markets, especially energy, which is pronounced due to the military developments in Ukraine and the sanctions against Russia.

Domestic exchange market remains stable, and since July, foreign reserves register a steady growth, which is above the forecast as of September. In conditions of slightly more moderate pressures from the energy crisis and inflow of foreign currency on the currency exchange market which is significantly higher than expected, as well as solid foreign currency liquidity of the banks, the National Bank continued to purchase foreign currency and to strengthen foreign reserves.  Foreign reserves are in the safe zone, and their level meets the adequacy requirements according to the international standards.

Regarding the activity in the domestic economy, the second quarter of 2022 registered a real growth of the gross domestic product of 2.8% on an annual basis, equal to the expected growth rate according to the National Bank latest forecasts. Cumulatively, the performances for the first half of the year are slightly better than the National Bank forecasts. However, the available high-frequency data on the domestic economic activity in the third quarter point to deceleration of the real economic growth, and along with the downward revisions of foreign demand due to the effects of the military conflict in Ukraine and rising energy crisis, pronounce the downward risks to the growth in the following period. 

In terms of the monetary sector developments, according to the latest data, the credit activity continued with a solid growth and slightly above the National Bank forecasts, amid more pronounced acceleration of the growth of total deposits, yet slightly more moderate than the expectations.

In September, the largest central banks continued to significantly increase the policy rates, amid upward corrections in the inflation path globally. In such circumstances, the prices of government bonds in the US and in the euro area continued to decrease, i.e. their yields increased. At the same time, the value of the US dollar continues to strengthen against the euro, given the increased demand for US dollars, as well as amid relatively more favorable prospects for the American economy. During the month, the prices of most of the energy sources and food on the world stock markets decreased. 

In general, the unfavorable external environment carries pronounced risks and imposes prudent domestic policies. The geopolitical tensions adversely affect both, prices and economic activity worldwide and are main source of the current energy crisis in Europe. The uncertainty about these developments remains the main risk to the overall macroeconomic context. The National Bank carefully monitors the macroeconomic data and the risks and, as before, will undertake all necessary measures, using available instruments, in order to maintain the stability of the exchange rate and the medium-term price stability.