Regular meeting of the National Bank Operational Monetary Policy Committee
Skopje, 14 April 2021
On 13 April 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.
Following the cut in the interest rate in March 2021, at this meeting, the Committee decided to preserve the interest rate at 1.25%, keeping the monetary policy relaxed. The current level of the interest rate was assessed as appropriate to the current economic and financial conditions. The decline in the key interest rate, to the level of 1.25%, as well as the current significant reduction of the offered amount of CB bills, contributed to further increase in the liquidity of the banking system and support of the credit flows in the economy. At its meeting, the Committee assessed that the liquidity released through the main National Bank instrument of Denar 15 billion last year is appropriate, and decided at today’s auction to offer the same amount of CB bills of Denar 10 billion.
According to the latest available macroeconomic indicators of the economic activity, in the last quarter of 2020, the fall in the gross domestic product further slowed down, as expected, and reduced to 0.7%, and the economic fall for the entire 2020 of 4.5% is very close to the forecast. The currently available high-frequency data for the period January - February 2021 indicate prolonged effects of the health crisis on the economic activity, which can also be associated with the occurrence of the third COVID-19 wave, which affects the further restraint of economic agents, and thus the dynamics of the economic recovery.
Regarding the inflation developments, in the period January - March 2021, the price changes are in line with the expectations according to the latest forecast of the National Bank. However, the upward revisions of the external input assumptions suggest moderately upward risks to the inflation forecast for 2021 of 1.5%. Moreover, there is still pronounced uncertainty arising from the movement of world primary commodity prices in the next period, according to 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. Namely, foreign reserves in the first quarter of 2021 registered a high growth, mainly due to the transactions on behalf of the government, i.e. the issuance of the new government Eurobond in March. At the same time, during this quarter, the foreign exchange market was favorable and without a need for major presence of the National Bank. The latest external sector data as of February 2021 point to the possibility for a trade deficit generally in line with that expected for the first quarter, and the latest currency exchange operations data are also in line with the expectations according to the latest forecast.
Observing the monetary sector, according to the initial data as of March 2021, the increase in both the deposits and the loans continues, whereby the annual deposit growth is above the forecasts for the first quarter of 2021, while the credit growth is within the forecasts.
In the period between the two meetings of the Committee, the liquidity of the banking system in denars remained at a relatively solid level, confirmed by the absence of need for banks’ trading on money markets. The movements on the domestic financial markets indicate a moderate improvement of the expectations of economic agents, visible through the increased net supply of foreign currency by natural persons on the currency and the foreign exchange markets at levels close to the net supply before the beginning of the health crisis.
On the international financial markets, the further increase in the number of vaccinated persons in the USA influenced the maintenance of the investors’ expectations for a solid recovery of the economic growth at global level. In such circumstances, the prices of shares traded on the world markets grew, while the prices of government bonds in the USA in longer maturities continued to decline. On the other hand, the prices of the safest government bonds in the euro area moderately increased, which, in addition to the increased purchase of these securities by the ECB, was also due to the investors’ perceptions about the impact of the relatively slower dynamics of the vaccination process in the member states of the euro area on the economic recovery.
Overall, at the meeting of the Committee it was concluded that the movements in the main macroeconomic parameters remain favorable and without major deviations in terms of the expectations, amid still present uncertainty and risks arising from the COVID-19 pandemic. The National Bank will continue with great vigilance to monitor the unfolding of the events and the potential risks from the environment and their effects on the domestic economy, for the purpose of an adequate and timely reaction, if necessary.