NBRM's Operational Monetary Policy Committee held its regular meeting

On 10 April 2018, the NBRM's Operational Monetary Policy Committee held its regular meeting and discussed the situation in the domestic economy, the developments on the international and domestic financial markets and the indicators of the domestic economy in light of the monetary policy setup.

Following the interest rate reduction in March, reflecting the sound economic fundamentals, amid further stabilizing the economic agents’ confidence, at this meeting of the Committee it was concluded that the interest rate on CB bills shall remain at the level of 3.00%. At the meeting, the Committee decided to keep the CB bills supply at the level of Denar 25,000 million.

At the meeting, the Committee concluded that the comparison of the latest macroeconomic indicators for the Macedonian economy with their forecasted dynamics do not poin to more significant deviations in individual segments of the economy. In accordance to the published estimated data, the real rate of change of GDP was 0% in 2017, which is not a significant deviation from the forecasted rate of 0.5%. Currently available high-frequency data for the first quarter of 2018 give different signals. However, in line with expectations, they mainly point to more favorable shifts in the economy in the first quarter, compared to the previous quarter. Regarding changes in consumer prices, available data for March 2018 show an average annual increase of 1.5% in the price level in the first quarter of the year, given the growth of all components, with the largest contribution of food and core inflation. Past inflation performances are lower compared to the October forecast, but at the same time there have been upward corrections in the expected trajectory of the foreign effective inflation and world oil prices and cereal for 2018. In such circumstances, risks regarding the forecast of 2% for 2018 have been assessed as balanced.

In the period between the two monthly meetings of the Committee, banks’ liquidity potential moderately increased, with the National Bank intervention in countervalue of Euro 15.5 million on the foreign exchange market being the largest contribution. Namely, net foreign currency inflows related to the changes in the ownership structure of several domestic entities were registered in March. Due to such developments, coupled with the seasonally increased supply of foreign currency from foreign exchange offices around Easter holidays, banks registered low net sales of foreign currency in transactions with all customers, as opposed to the seasonal growth of net sales characteristic for this month of the year.

Thereby, continuing the favorable developments in the foreign exchange market this year. Thus, in the first quarter, banks registered net sales of foreign currency in transactions with customers of Euro 34.6 million, which is lower by Euro 90.6 million compared to the same period of 2017, given the three times higher growth of the supply compared to the increase of the foreign currency demand. The favorable market developments contributed for a relatively high foreign currency liquidity of the banks.

The increase of the liquidity of autonomous factors also increased the potential of denar liquidity in the banking system. Banks placed their excess liquid assets in short-term overnight deposit facility with the National Bank, towards the end of the reserve requirement period.

On the other hand, banks that faced short-term liquidity shortages secured the necessary funds on the interbank market, where, immediately after reducing the interest rates on monetary instruments, a moderate downward adjustment of the interest rates on interbank loans was also registered.

Shifts in the foreign reserves at the beginning of the year refer to their increase, whereby their adequacy indicators show that they continue to be in a safe zone. The increase in reserves during the first quarter of the year is mostly due to the issuance of the sixth government Eurobond on the international financial markets. Regarding the available external sector data, their number so far is insufficient to draw reliable conclusions in this domain. Foreign exchange market data, as of March, point to net inflows from private transfers within the expectations for the first quarter.

Regarding the monetary developments, the final data as of February show a recovery of the deposit base after its decline in the first month of the year. The deposit growth in this month was largely due to higher household savings, with growth also registered in corporate deposits. Credit market registered minor positive movements on a monthly basis in February, which amid further decline of corporate loans, is entirely due to the increased lending to households. Deposits and loans flows in the first two months of 2018 are slightly weaker than expected, but given the better performances at the end of the previous year, the level of deposits and loans does not significantly deviate from the forecasted for the first quarter.

In March, volatile developments were registered on the international financial markets, amid investors’ concerns from tightening global trade relations, due to the announced custom duties by the President of USA for selected imported foreign trade products. In such cases, a downward correction of the shares prices and reduction of government bond yields was registered on both sides of the Atlantic. At the FED’s meeting, in accordance with the expectations, the monetary policy was further tightened i.e. increase of the interest rate spread target by 25 base points, at the level of 1.5% and 1.75%.

Generally, at the meeting, the Committee concluded that the latest macroeconomic indicators and assessments do not indicate significant deviations in terms of the forecasted dynamics and the perceptions about the environment for monetary policy conduct are mainly unchanged compared to the previous forecast. In the period head, the National Bank will carefully monitor all economic indicators and developments in the domestic economy in the context of the monetary policy setup,