Regular meeting of the Operational Monetary Policy Committee was held on July 9,2013, the latest developments on the international financial markets, the banking sector data as of May 2013, the banking system liquidity and the movements on the national financial markets in June 2013 and the latest macroeconomic indicators were discussed at.
Regular meeting of the Operational Monetary Policy Committee was held on July 9,2013, the latest developments on the international financial markets, the banking sector data as of May 2013, the banking system liquidity and the movements on the national financial markets in June 2013 and the latest macroeconomic indicators were discussed at.
The latest macroeconomic indicators for the Euro area published in June are more optimistic and indicate possibility for better economic activity in the second half of the year. However, in conditions of further slow recuperation of the European economy, the uncertainty on the financial markets persists, and as a result, the European Central Bank continues with the implementation of adjustable monetary policy. In USA, the economic activity recovers with solid dynamics and contributes to the US economy to retake the lead as a global driving force of the economic growth, a role that was played so far by the emerging economies. In the banking sector, as of June 2013, the trend of high liquidity maintenance continued, with the banks actively using the monetary instruments and trade on interbank money market to overcome the liquidity fluctuations. The analysis show that the latest macroeconomic developments do not differ significantly from the April projections. The latest indicators for the economic activity indicate a possibility for GDP maintenance in the zone of positive growth rates during the second quarter. It is further expected that the recovery will not be sufficiently strong to cause larger pressures in the economy through the demand channel. After the decrease in the prices in May, in June they augmented again due to the higher food prices. However, the average inflation for the second quarter remains within the expectations, so the assessments for the annual inflation projected to 2.8% maintained. The foreign reserves reduced, which is common seasonal movement, while the reduction intensity is in line with the expectations. The indicator for the reserves adequacy still indicate a foreign reserves level that is sufficient to deal with possible unpredictable shocks. From the aspect of the latest preliminary monetary data as of June, slight movement of the credit activity has been registered, with the annual changes indicating faster growth with the household loans than enterprises loans, where the increase decelerated. However, the credit growth is in line with the projections, and the projection for 2013 remains to be accompanied with downward risks, especially having in mind the still feeblish economic growth than previously expected, the deleverage process of the parent banks from the Euro area, as well as the banks' risk perceptions. However the deposit base is maintained stable, with the trend of faster increase in the Denar savings than the savings in foreign currency still being present. The risks are still present, but part of them is mitigated by the monetary measures the NBRM undertook in July. Namely, the still uncertain global environment is the main risk to macroeconomic projections, as perceived through the once more poor assessments for the foreign demand and lower metal prices on the world market. Moreover, the core inflation remains relatively high, signaling greater transmission effects of the increase in the food and energy prices on other prices in the economy. However, the additional measures that the NBRM took in July influenced towards mitigation of the impact of some of the identified risks, particularly external position risks and credit growth risk. The change in the reserve requirement instrument is expected to reduce the risk of further narrowing of the spread between Denar and foreign exchange savings yield. In addition, in circumstances where the risks of possible less favorable external environment intensified again, this measure is expected to act stimulating on the long-term capital inflows from abroad, and to mitigate existing risks to external position. In circumstances where the macroeconomic indicators are moving within projections and part of the existing risks are mitigated by the measures already undertaken by NBRM in July, the assessment of the economic and financial conditions in the economy showed that there is a room for further monetary relaxation by lowering the interest rate. Hence, at the meeting of the Committee it was decided to auction CB bills by applying a tender with limited amount and fixed interest rate of 3.25%, representing a decrease of 0.25 percentage points compared to the current maximum of the fixed interest rate on CB bills of 3.50%. At the same time, at the monthly meeting of the Committee, a decision on appropriate reduction in the interest rate on available seven day deposits, at a level of 1.50% was adopted. In this way, monetary policy provides additional support to the process of economic recovery through the basic monetary instrument, which reduced to its historic minimum, thus narrowing the space for further impact in this direction through this instrument. NBRM will continue to closely monitor the future macroeconomic developments and the possible risks materialization, and accordingly, make appropriate adjustments to the monetary policy.