On 12 November 2019, the National Bank’s Operational Monetary Policy Committee discussed the key domestic economy indicators and the developments on both, international and domestic financial markets, in the context of the monetary policy setup.

The Committee also discussed the latest domestic economy developments in the context of the new macroeconomic forecasts. The Committee found that the monetary setup was appropriate to the current economic and financial conditions and that the economic fundamentals remained sound, with no imbalances in the economy. The low and stable inflation and favorable position of the balance of payments, since the beginning of the year, continuously contribute to interventions for purchasing foreign currency by the National Bank on the foreign exchange market. The dynamics and currency structure of household savings show stable expectations. In such circumstances, the Committee decided to keep the CB bills’ interest rate at 2.25% and at the CB bills auction on 13 November 2019, to offer CB bills in the amount of Denar 25,000 million, the same amount as the one that falls due.

Regarding the latest macroeconomic indicators for the domestic economy, after the economic growth of 3.6% in the first half of the year, high frequency data on economic activity available for the third quarter generally indicate continued growth in economic activity, amid favorable developments in industry, trade and construction.

The average annual inflation rate for the first ten months of the year amounted to 0.9%, amid expected inflation of 1% for this year and balanced risks.

The number of the external sector indicators is limited, and the data available so far point to a favorable external position. Foreign reserves adequacy indicators continue to hover in the safe zone.

In terms of movements in total deposits and total loans, preliminary data for October show their further annual growth, according to the expected path within the October forecasts.

In the period between the two Committee meetings, the liquidity of the domestic commercial banks remained relatively stable and high, due to which they continued to have a moderate need for borrowing on the interbank deposit market. They continued to direct excess available denar funds to the deposit facilities with the National Bank, which provide high flexibility and availability of funds for smooth lending to domestic entities and other types of investments.

The movements on the foreign exchange market were characterized by a moderately lower supply of foreign currency, which mainly resulted from the corporate sector and contributed the banks, after a pause of three months, in October again on a net basis to sell foreign currency for their clients. Such net-position of the banks in the transactions with their clients conditioned a lower monthly volume of National Bank interventions for purchase of the excess foreign currency from the market.

The optimism for resolving the trade dispute between the USA and China in October, related to reaching an agreement for the “first phase” of the trade contract, acted toward increased propensity to take risk on the international financial markets. Consequently, investors were focused on riskier financial instruments which resulted in increase in their prices, while safe financial instruments registered a decline in prices, i.e. higher yields. Despite these market developments, financial analysts, but also the relevant international institutions, such as the IMF and the European Commission), continued to have perceptions for presence of downward risks for the world economic growth. In such conditions, the central banks of the largest world economies continued to implement relaxing monetary policies. Namely, the ECB maintained the current monetary policy setup, and at the Fed's meeting, in accordance with the expectations of the participants in the international financial markets, the target interest rate spread was reduced by 25 basis points, from 1.5% to 1.75%.

Overall, at the meeting of the Committee it was concluded that the latest macroeconomic indicators are generally in line with the expectations, and the perceptions for the environment for monetary policy conduct are mainly unchanged compared to the previous assessment. However, the adverse risks from the external environment, as well as the risks from the domestic context, were re-emphasized. In the period head, the National Bank will carefully monitor the trends and potential risks in the context of the monetary policy setup.