Skopje, 15 September 2021

On 14 September 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.

The Committee assessed that the current policy rate is appropriate to the current economic and financial environment, and decided to keep it the same at 1.25%, preserving a relaxed monetary policy. The current policy rate cut as well as the significant reduction of the offered CB bills increased the banking system liquidity, supporting credit flows in the economy. The Committee also assessed that the current banking system liquidity is appropriate and decided to offer the same amount of Denar 10 billion at today’s CB bill auction.

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 annual contraction in the previous four quarters due to the COVID-19 pandemic, in the second quarter of 2021, GDP registered an annual real growth of 13.1%. GDP growth in the second quarter is entirely due to the positive contribution of domestic demand, amid negative contribution of net exports, as expected. In the first half of the year, it rose by 5.2%, which almost entirely follows the National Bank forecast of 5.4%. The currently available high frequency data for the third quarter of 2021 are partial and insufficient to have an overall view of the situation. The July data show a further significant real annual growth in total trade turnover, amid annual stabilization of movements in the industrial output.

Analyzing inflation, in January-August, the annual price growth averaged 2.7%. In this period, a significant increase was observed in the prices of oil and oil derivatives, caused by the world stock market developments, with additional influence of the increases of administrative and regulatory nature as well as the higher restaurant and hotel prices, which is partly related to the measures to prevent the spread of COVID-19. Inflation performances are slightly higher than expected, amid pronounced uncertainty in the movement of world prices of primary commodities in the period ahead.

Foreign exchange reserves remain appropriate and in the safe zone. In the period July-August, the National Bank purchased foreign currency taking advantage of the favorable developments in the foreign exchange market, the Eurobond issued in 2014 was repaid and the IMF made Euro 160 million SDR allocation. On cumulative basis, the growth of foreign reserves since the beginning of the year is slightly higher than expected in the April forecasts. In July 2021, trade deficit was slightly higher than expected for the third quarter of the year, but the assessment period is too short to draw precise conclusions. The latest available data on currency exchange operations point to possibly higher net inflows of private transfers than expected for the third quarter of 2021.

The monetary sector developments remain solid, and according to the initial data as of August 2021, the annual growth rates of total deposits and total loans are above forecasted for the third quarter of 2021, in line with the April forecasts.

In the period between the two Committee meetings, the banking system denar liquidity was relatively stable and high. The foreign exchange market indicators point to further reversal of foreign currency supply by exchange offices and natural persons to the pre-crisis levels. These market trends, along with the solid foreign currency liquidity of banks in August, increased the supply of foreign currency in the economy and made the National Bank to purchase excess foreign currency liquidity from the banking system in the amount of Euro 30.7 million.

In August, the movements in the international financial markets were largely in response to the favorable economic indicators for the United States and the heightened expectations for the announcement of withdrawal of the monetary stimulus by the Fed, the restrictive monetary policy views of ECB officials as well as the intensified price pressures globally. In such circumstances, investors' perceptions for early beginning of monetary policy tightening by the largest central banks prevailed, causing the government bond prices in the euro area and the United States to fall, as their yields increased.

Overall, the Committee concluded that so far, the macroeconomic indicators are generally as expected and the perceptions for the monetary policy environment remain unchanged compared to the previous assessment. The uncertainty and risks posed by the COVID-19 pandemic persist. In the period ahead, the National Bank will carefully monitor the trends and potential risks and take appropriate measures, as necessary.