On 10 February 2015, the NBRM's Operational Monetary Policy Committee held its regular meeting and discussed the situation in the Macedonian economy and the countries in the region, the developments on the international and domestic financial markets and the latest macroeconomic indicators
Press release of the NBRM
On 10 February 2015, the NBRM's Operational Monetary Policy Committee held its regular meeting and discussed the situation in the Macedonian economy and the countries in the region, the developments on the international and domestic financial markets and the latest macroeconomic indicators in the light of the monetary policy setup.
The assessment of the economic and financial conditions showed that the current monetary policy setup is adequate and it was decided the CB bills offered at the auction to be in the amount that falls due (Denar 25,500 million), at an unchanged interest rate of 3.25%.
The economy has still been recovering at a solid pace, in part supported by the lending of the domestic banks. Economic recovery takes place in the absence of price pressures. These developments indicate that there is a suitable environment for a sustained recovery of the private sector, and it was again assessed that the current support of the local economy through the monetary policy measures is sufficient. Leaving the zone of accommodative monetary policy in the period ahead will depend on the changes in the external position of the economy and the effects on foreign reserves.
The latest macroeconomic indicators do not point to major changes in the monetary policy setup. Regarding the economic activity, high frequency data for the last quarter still point to further growth of the domestic economy, probably at a similar pace as in the previous quarter.
The continuation of the economic growth in the last quarter is evident in most of the indicators by sector, with the exception of construction, which given the high comparison base still registers an annual decline. Movements in the indicators of economic activity registered so far, suggest the possibility of a slightly higher than expected growth in 2014.
In the absence of new data on inflation since the beginning of 2015, changes in external assumptions continue to point to downward risks to the projected inflation for 2015. These assessments reflect the February revisions to the world oil price, which envisage significantly sharper decline in oil prices in 2015 compared with the October projection. However, one should bear in mind the great uncertainty about the future movements in world oil prices and the possibility of sudden changes in this category. Also, in the meantime, upward risk factors appeared, i.e. adverse weather conditions in the domestic economy, but for the time being it is difficult to assess their effect accurately.
The latest data on foreign reserves show growth since the beginning of the year, amid favorable movements on the foreign exchange market, where as continuity to the performances in December, in January the NBRM again made net purchasing of foreign currency. Thus, changes in foreign reserves since the beginning of the year are within the October projection, and foreign reserves adequacy indicators further point to a level of foreign reserves sufficient to cope with possible, unforeseen shocks. However, the risks regarding the future movement of foreign reserves remain, and are mainly related to the unfavorable external environment.
Regarding the credit market, the preliminary data for January point to a slight decline in the loans on a monthly basis, following the fast credit growth registered in the last quarter of 2014, especially in December. The monthly decline in loans results from the reduced lending to the corporate sector, which is not unusual for the first month of the year, and suggests possible temporary character of these movements. Loans to households continued to grow on a monthly basis at a similar pace as in the previous month. Given the fast credit growth in the last quarter of 2014, the annual growth rate of total loans in January is around 9%, which is above the projection for the first quarter of 2015. Regarding the deposit potential, total deposits continued to grow at a solid pace also in January, whereby their annual growth dynamics in January is above the expectations for the first quarter, as part of the October projection.
In January, the liquidity of the banks increased under the influence of the autonomous factors, wherefore the banks showed an increased interest in placing excess liquid assets in deposits with the NBRM. Against such a backdrop, trading on money markets was relatively low. Developments on the foreign exchange market were stable and the NBRM intervened by purchasing foreign currency from the market makers.
Internationally, the beginning of 2015 was marked by growing market uncertainty due to strained relations between Greece and the euro zone on the eve of the early parliamentary elections. In the second half of the month, the main drivers of market developments were the measures of central banks, with the decision of the Central Bank of Switzerland to deviate from the target of the Swiss franc against the euro having a strong impact on the markets. Also, in order to revive the economy of the euro zone, the ECB announced it would initiate an additional purchase of securities in March.
Generally, the latest NBRM's assessments do not point to major changes in the environment for conducting the monetary policy. Foreign reserves adequacy indicators are expected to remain in the safe zone. Economic growth is solid and there are no price pressures. Movements in the credit market have been generally favorable for a longer period of time, despite their variability in individual months, suggesting relatively efficient transmission of the monetary measures undertaken so far on the credit activity and more stable expectations of domestic banks.
Under such favorable economic conditions, in the period ahead, the NBRM will be mainly focused on monitoring the realization of the projected movement of foreign reserves and foreign exchange market developments and will adjust the monetary policy accordingly. As before, the risks to the baseline macroeconomic scenario are mainly of external nature and are associated with possible changes in the pace of recovery of the global economic growth and the volatile and uncertain dynamics of the world food and energy prices, which has been rather pronounced lately. Poor weather conditions in the country pose an additional risk, which may adversely affect some of the domestic production and prices.
The NBRM will continue to monitor closely the future macroeconomic developments and the possible materialization of risks and will adjust the monetary policy accordingly.