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

Skopje, 16 March 2022 

On 15 March 2022, the National Bank Operational Monetary Policy Committee held its regular meeting and discussed the latest 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 concluded that the recent events in Ukraine significantly change the global economic context and affect the domestic economy. They basically mean an upward risk to inflation, and a downward risk to the economic growth. On the one hand, the effects on the inflation are visible, while on the other, there are already certain risks for the slowdown in demand due to increased uncertainty, restraint of domestic entities and reduced demand from our trading partners. In circumstances when the inflation is currently predominantly driven by external supply factors, and the risks to the economic growth (demand) are downward, the Committee decided for the time being to keep the policy rate unchanged, at the level of 1.25% and to offer an unchanged amount of CB bills of Denar 10 billion. The current monetary setup supports the lending to companies and households, i.e. it provides support for further recovery of the economy.

However, we will continue to reassess the monetary policy setup, taking into account the latest information about the conflict, as well as the fiscal measures and their implications on the domestic economy. Actually, the National Bank has already started the new round of macroeconomic forecasts within which it will make a comprehensive reassessment of the monetary policy setup. If necessary, the central bank will respond faster.

Regarding the inflation in the domestic economy, there are upward price movements, present in all countries at the moment. Thus, the first two months of 2022 registered an average annual inflation rate of 7.1%. The acceleration in inflation is mainly a reflection of growth of the world prices of primary products (food and energy), but also of import prices in general. This is particularly evident in economies that are import dependent, i.e. where a significant part of consumption is imported, as is the case with our economy, as one of the most open trade economies in the region.  The latest ECB forecasts for the inflation in the EU, as our major import partner, as well as the upward revisions of the world energy and food prices point to higher inflation than forecasted with the autumn forecasts also in our country this year, and then gradual reduction next year. In addition, the domestic factors are also monitored, especially the situation in the labor market and its possible impact in the forthcoming period. The uncertainty associated with price changes remains pronounced, given the uncertain economic effects related to the development and dealing with the pandemic and the current geopolitical tensions.  The National Bank carefully monitors all changes, and if the price growth is of a prolonged character, more pronounced pressures from the demand are noticed and significantly affects the inflation expectations, it is prepared for an appropriate response with all its available instruments.

The level of foreign reserves and the analysis of the indicators for their adequacy show that they remain in the safe zone. The uncertain environment, due to the occurrence of the new external shocks, but also the present unfounded speculations in the public about the stability of the exchange rate have unfavorable repercussions on the demand for foreign currency in the economy. The stability of the exchange rate is guaranteed and should not be brought into question. In this context, at its meeting, the Committee discussed the changes in the currency structure of savings, as well as the behavior of the entities on the foreign and the currency exchange markets. Moreover, the Committee concluded that certain target measures, such as the change in the reserve requirement can be used in response to such tendencies.

Regarding the developments in the real economy, in the fourth quarter of 2021, the real GDP increased by 2.3% on an annual basis, which is more moderate than expected according to the October forecast. With these performances, the further growth of the domestic economy continued, but at a slower pace, in conditions of spreading of the fifth wave of the pandemic related to the “omicron” variant of COVID-19, the disturbances of the global value chains and the occurrence of the first effects of the disturbances on the energy market. Observed for the entire 2021, the economy registers a real growth of 4%, which is within the expectations of the October forecast of the National Bank (3.9%). The high frequency data for the first quarter of 2022 are partial and insufficient to have an overall view of the situation, and the assessment is additionally hampered due to the crisis in Ukraine. January data show a further real annual growth of total trade turnover, as well as a small annual increase in industrial production, after the fall in the previous quarter. Taking into consideration the latest geopolitical developments, the risks around the growth forecast and the economic outlook for this year are downward.

The solid developments in the monetary sector continued also in February. According to the preliminary data, in February 2022, loans and deposits registered solid annual growth rates. The growth of the lending to the corporate sector accelerates, and it remains more pronounced relative to lending to households.

Overall, at its meeting, the Committee concluded that the uncertainty and the risks from the further course of the COVID-19 pandemic are significantly pronounced by the escalation of the geopolitical tensions, and their potential effects, primarily on the global price growth, but also on the trade flows and the demand, which requires careful monitoring of the situation. The National Bank continues to carefully monitor the developments, the risks and the changes in the global and domestic conditions and remains prepared for an appropriate response through the available set of instruments.