Regular meeting of the Operational Monetary Policy Committee of the National Bank

Skopje, 11 August 2021

On 10 August 2021, the National Bank Operational Monetary Policy Committee held its regular meeting and discussed the developments on the international and domestic financial markets and the indicators of the domestic economy in the context of the monetary policy setup. 

At its meeting, the Committee assessed that the existing level of the key interest rate is appropriate to the current economic and financial conditions, and decided to remain the same, at the level of 1.25%, whereby the monetary policy retained its relaxed character. The current decline in the key interest rate, as well as the significant reduction of the offered amount of CB bills, contributed to increasing liquidity of the banking system and supporting credit flows in the economy. At its meeting, the Committee confirmed that the total liquidity released through the main National Bank instrument from the beginning of the pandemic is appropriate, and decided at today’s auction to offer the same amount of CB bills of Denar 10 billion.

The comparison of the latest macroeconomic indicators of the domestic economy with their forecast dynamics does not show significant deviations in the individual segments of the economy. After the moderate deepening of the annual fall in the gross domestic product in the first quarter of 2021, which was expected also according to the April forecasts due to the third pandemic wave, the high-frequency data for the second quarter of the year point to recovery of the economy. Namely, the movements of the indicators of the economic activity are in line with the expectations for a higher economic growth rate in this period, amid positive developments on a quarterly basis and low base effect from the same period last year.

Regarding the inflation developments, the annual changes in consumer prices in the period January - July, on average of 2.5%, are slightly above the expectations according to the April forecasting round. Regarding the expected movements of import prices, the latest revisions are in an upward direction. The uncertainty about the movement in the world prices of primary products in the next period is still pronounced, given the uncertain economic effects related to the pandemic and the prospects for dealing with it. 

Foreign reserves are still at an appropriate level and are maintained in the safe zone. According to the latest available data, the change in foreign reserves in July 2021 is influenced by the transactions on behalf of the government, amid simultaneously favorable developments on the foreign exchange market, which contributed to the solid purchase of foreign currency by the National Bank. On cumulative basis, the changes in the foreign reserves from the beginning of the year currently correspond to the April forecasts. In the second quarter of 2021, the trade deficit is higher than expected for the second quarter of the year, primarily as a result of the higher growth in imports relative to the growth in the export component. On the other hand, the available data on currency exchange operations point to the possibility for slightly higher net inflows of private transfers than expected for the third quarter of 2021.

Observing the monetary sector, the movements remain solid, and according to the initial data as of July 2021, the annual growth rates of deposits and loans are mainly in line with the forecasts.

The monetary policy setup enabled the liquidity of the banking system in the period between the two meetings of the Committee to be maintained at a relatively solid and stable level. The favorable movements on the foreign exchange market continued, whereby the banks’ seasonal purchase of foreign currency from exchange offices reached the pre-crisis level from July 2019, and the supply of foreign currency from natural persons reached the highest monthly value. These market movements, accompanied by the solid foreign currency liquidity of banks, in July contributed to the increase in the supply of foreign currency in the economy and consequently, to the interventions of the National Bank for withdrawal of the excess foreign currency liquidity from the banking system. Moreover, the National Bank purchased Euro 48 million in July, which is in accordance with the monthly interventions for this month of the year before the commencement of the health crisis. The favorable developments in the foreign exchange market continue also in the beginning of August, visible through the additionally increased supply of foreign currency from the private sector, due to which the National Bank intervened by purchasing additional Euro 25 million.

In July, the international financial markets registered volatile movements under the influence of the solid quarterly financial results of the global companies on the one hand, and of the investors’ concern about the consequences caused by the new COVID-19 virus variant, on the other. In such conditions, the perceptions for a slower economic recovery at global level and increased propensity to invest in the safest instruments prevailed, which significantly increased the prices of government bonds in the euro area and in the USA (i.e. reduced their yields). 

Overall, at the meeting of the Committee it was concluded that the movements in the main macroeconomic parameters are currently within the expectations. The uncertainty and risks from the further course of the COVID-19 pandemic are still present. In the period ahead, the National Bank will carefully monitor the trends and potential risks, in order to respond in an appropriate manner, if necessary.