Skopje, 05 February 2025
Interest rate on CB bills cut by 0.2 percentage points, other interest rates remain unchanged-prudent monetary policy preserved
On 4 February 2025, the National Bank’s Executive Board held a regular meeting on the monetary policy setup and discussed the latest data and information on the global and domestic economy, as well as the latest developments on the international and domestic financial markets in the context of the monetary policy setup.
At the meeting, the Executive Board assessed that despite the relatively favorable trends, risks still remain and are more pronounced. Hence, it was decided to continue with the careful normalization of the monetary policy setup. Consequently, the Executive Board decided to reduce the interest rate on CB bills by 0.2 percentage points, to the level of 5.35%. Interest rates on overnight and 7-day deposit facilities remained unchanged. The supply of CB bills at the regular auction remained unchanged and amounted to Denar 10 billion.
Such change of the monetary policy setup reflects the favorable trends in inflation and foreign reserves, amid still present and more pronounced risks related to the external environment. In addition, there are risks of domestic factors that affect the aggregate demand. As for the external risks, the announcement of new protectionist measures could repeat the global inflationary pressures. The volatility of commodity markets is also evident, due to unstable geopolitical context and climate factors. In terms of the ECB’s policy, as a factor the National Bank has taken into account, at the last meeting in January, it decided to cut the interest rate by 0.25 percentage points each, for a fifth time since June last year.
The level of interest, together with the changes in reserve requirement and macro-prudential measures taken, are still expected to contribute towards price stability in the medium run and the stability of the exchange rate of the denar against the euro.
Inflation ranges within the expectations. The annual inflation rate in December 2024 amounts to 4.4% and as expected stood at the similar level as in November, influenced by the base effect in the same period last year, due to the measures taken to temporary limit the price growth. The annual pace of food prices and core inflation remains stable, while the decline in energy prices moderately decelerates. The average inflation rate in 2024 equaled 3.5% and is in line with the projected rate of the October forecasting round. The European Commission's January Consumer Expectations Surveys show that the expectations for price reduction in the next period dominate. Regarding the expectations for stock exchange prices of commodities, the latest forecasts for 2025 show upward revision in oil prices, while downward in basic food products. Although the inflationary movements are in line with the expectations, the risks exist and require close monitoring.
The foreign exchange market is persistently stable and the movements are favorable. Last year, foreign reserves increased, slightly higher than expected, reaching a level of Euro 5,019 million at the end of December. This is an appropriate level for maintaining the exchange rate stability of the domestic currency. The growth is mainly due to the purchase of foreign currency on the foreign exchange market by the National Bank. Regarding the latest available external sector data, the trade deficit in the period October ‒ November 2024 is currently lower compared to the expectations for the fourth quarter in the October forecasting round. The developments on the currency exchange market as of the end of December are matching the projected net inflows based on private transfers.
As for the economic growth, the available high-frequency data for the period October-November indicate further growth in the last quarter of 2024. The construction and the turnover in catering registered an accelerated real growth, while the movements in industry in the fourth quarter were similar, which is in favor of the expectations for slightly accelerated economic growth in the last quarter of 2024, unlike trade where the real growth is moderate. Observing risks to the growth in the next period, they still exist and are primarily related to the developments in the external environment, as well as to the intensity and dynamics of the implementation of domestic infrastructure projects.
In the monetary sector, deposits and loans registered solid growth rates as of December, with significantly improved movements for the last quarter of the year, indicating greater credit support to the economy than expected.
Generally, the latest developments in the key macroeconomic indicators, as well as the perceptions in relation to their future path, created an opportunity for further careful monetary policy normalization. Risks of the external environment still exist and are pronounced, while risks of domestic factors which can affect both demand and prices in the upcoming period are being closely monitored. Hence, the conduct of prudent macroeconomic policies will remain a priority in the future. The National Bank remains prepared to use all the necessary instruments and to take appropriate measures that will contribute to maintenance of the stability of the exchange rate of the denar against the euro and the medium-term price stability.