Skopje, 10 October 2022
The National Bank, through its monetary operations, has been normalizing the monetary policy since the end of last year, and since April by increasing the policy rate on several occasions. The banking sector remains well capitalized and liquid. This has been said in the statement of the International Monetary Fund Mission, where announced that the approval of the Precautionary Line of Credit (PLL) is in the final stage.
The IMF states that the inflation in the domestic economy is mainly caused by global factors, but that the inflation expectations raised, as well as the nominal wages. In such circumstances, the IMF notes that the National Bank started with a gradual normalization of the monetary policy from the end of last year by withdrawing liquidity through interventions in the foreign exchange market, and from April this year with a cumulative increase of the policy rate by 1.75 percentage points. The statement indicated that the National Bank should continue to take all necessary measures to maintain its goals.
Regarding the banking sector, it is concluded that it is liquid and capitalized, and the National Bank is vigilantly monitoring the developments and is ready to take measures if the risks to the stability of the banking system rise. The IMF supported the adoption of the Law on Financial Stability in July this year, as a step that will continue to strengthen the coordination of macro prudential policy and the supervision of the financial system, as well as for other legal initiatives that will enable better financial stability.
The PLL is an instrument enabling the IMF to ensure liquidity to overcome certain shocks and challenges during crisis episodes. What is of particular importance to us is that this instrument is awarded to countries that have sound economic fundamentals, practice and will practice sound macroeconomic policies, and hence, have macroeconomic stability.
During the process of approving access to this instrument, several segments are evaluated, including the monetary policy, the balance of payments position, the supervision of the financial sector, as well as the adequacy of the statistical data. If a country has significant weaknesses in any of these categories, then it cannot gain access to this instrument.
For these two years, since the beginning of the pandemic, the National Bank, with the policy it applied, has been primarily focused to price maintenance, and thus overall macroeconomic stability, but it also aims to mitigate shocks to the economy by conducting an accommodative monetary policy. This was also stated in numerous reports of international financial organizations when monitoring the domestic economy. The main goal of the National Bank is still the stability maintenance.
The PLL arrangement of the IMF supports the policies for the normalization of the economy, after the two major external shocks. At a time when the economy was still recovering from the pandemic, prospects for an acceleration of economic growth worsened after Russia's invasion of Ukraine, as well as a sudden increase in energy and food prices. The arrangement will help to bolster the foreign reserves, support economic growth and enable measures to protect citizens most affected by the crisis through higher consumer prices.