Skopje, 13 October 2021 

On 12 October 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.

The Committee assessed that the current policy rate is appropriate to the current economic and financial environment, and decided to keep it the same at 1.25%, and the amount of CB bills that will be offered to remain unchanged in the amount of Denar10 billion. At the session, it was assessed that having no pressures from the demand, the moderate upward movements of inflation are currently driven by factors on the supply side. Therefore, for the time being, there is no need for a monetary reaction to these price movements, but we will continue to monitor them closely. 

The comparison of the latest macroeconomic indicators of the domestic economy with their forecast dynamics does not show significant deviations certain segments of the economy. In the first half of the year, the gross domestic products rose by 5.2%, which almost entirely follows the National Bank forecast of 5.4%. The high frequency data available for the third quarter of 2021 mainly point to further annual growth of economic activity, but more moderate, compared to the high annual growth recorded in the second quarter. Namely, the data for the period July - August show high annual growth rates in the turnover in the total trade and catering and a minimal decline in the industrial output. Regarding the performed construction works, the data for the first month of the quarter point to lower performances for the time being, taking also into account the pronounced variability of the movements by months in the construction activity.

Analyzing inflation, in January - September, the annual price growth averaged 2.8%. In this period, a significant contribution to the growth is made by the domestic prices categories, which are related to the movements of prices of primary commodities on world stock exchanges, with the transmitted effect of last year's increase in prices of a regulatory nature, as well as certain factors specific to the pandemic crisis in conditions of relaxation of restrictive measures. Hence, the price pressures for now are estimated to be mainly driven by factors on the supply side, without greater pressures than demand. The realization with the inflation are slightly higher than expected, which together with the upward revisions in import prices indicate risks for moderately higher inflation than the projected inflation rate of 2.2% for this year. Thereby, the uncertainty and variability in the movement of world prices of primary products, and above all energy, in the next period is emphasized.

Foreign reserves are still at an appropriate level and maintained in the safe zone. In the third quarter of 2021, the National Bank purchased foreign currency taking advantage of the favorable developments in the foreign exchange market, the Eurobond issued in 2014 was repaid and the IMF made Euro 160 million SDR allocation. On cumulative basis, the growth of foreign reserves since the beginning of the year is slightly higher than expected in the April forecasts. In the period July - August 2021, the trade deficit is higher than expected for the third quarter of the year, while the data on the currency exchange operations indicate higher net inflows in private transfers than expected for the third quarter of 2021.

The monetary sector developments remain solid, and according to the initial data as of September 2021, the total deposits are at the level of the forecasted annual growth, while the total loans are above forecasted for the third quarter of 2021.

Higher net demand for foreign currency from the corporate sector was present on the foreign exchange market in September, amid intensifying economic activity and growth of energy prices globally, and to a lesser extent due to dividend payments. Banks fully met the net demand for foreign currency from their own foreign exchange assets, but also from the solid inflows of liquidity in foreign currency from exchange offices and natural persons, which was around the levels in the same period in 2019. In such circumstances, the National Bank did not intervene on the foreign exchange market.

In September, the world's leading central banks continued to pursue an expansionary monetary policy, with some announcing the possibility of a gradual reduction in the amount of liquidity injected through quantitative easing programs. In such circumstances, in the international financial markets, the prices of government bonds in the euro area and in the United States continued to decline (their yields increased), and the value of the US dollar increased.

Overall, at the meeting of the Committee it was concluded that for the time being, the movements in the main macroeconomic parameters are generally within the expectations. The recovery of the economy almost entirely matches the forecast, the monetary movements are slightly better than the forecast, the performances in the foreign reserves are moderately better than the projections, and the inflation movements moderately exceeds the projection, dominated by import factors on the supply side. However, the uncertainty and risks from the further course of the COVID-19 pandemic are still present. In the period ahead, the National Bank will carefully monitor the trends and potential risks and react adequately.