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

Skopje, 16 June 2021 

On 15 June 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 decided to keep the key interest rate unchanged, at the level of 1.25%, whereby the monetary policy remains relaxed. Given the already performed relaxation in March 2021, while there are still uncertainty and risks related to the pandemic, at this meeting, the Committee decided to keep the interest rate on CB bills at the current level, which was assessed as appropriate to the current economic and financial conditions. 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. 

According to the latest available macroeconomic indicators of the economic activity, the gross domestic product in the first quarter of 2021 registered a real fall of 1.9% on an annual basis, in conditions of a third COVID-19 wave which adversely affected the dynamics of the economic recovery. Such dynamics of the economic activity in the first quarter was expected within the April forecasting round. The currently available high-frequency data for the second quarter of 2021 are limited to fully grasp the situation, but indicate positive signals in accordance with the stabilization of the third wave of the pandemic and the started immunization in the country. At the same time, data as of April show a significant acceleration of the real annual growth of the turnover in the total trade and the industrial production, largely due to the low base effect, which is related to the tough measures introduced to prevent the spread of COVID-19 in this period last year.

Regarding the inflation developments, the annual price growth in the period April - May 2021 amounts to 2.9% and is in line with the expectations according to the April forecasts of the National Bank. Regarding the expected movements of import prices, the latest revisions are in an upward direction. The uncertainty regarding the movement in the world prices of primary products in the next period is particularly pronounced, given the uncertain economic effects related to the pandemic and the prospects for dealing with it.

Foreign reserves are maintained at the appropriate level and in the safe zone, and at the end of May 2021 they increased compared to the end of the first quarter. Regarding the available external sector data for the second quarter of 2021, data as of April show a widening of the trade deficit, which is slightly higher than expected for the second quarter of the year, but the assessment period is too short to draw more reliable conclusions. At the same time, according to the latest data on currency exchange operations, the net inflows are slightly higher than expected for the second quarter of 2021. The balance of payments for the first quarter of 2021 is in line with the expectations according to the April forecast.

Observing the monetary sector, according to the initial data as of May, the annual growth of deposits and loans continues, at a slightly faster pace compared to the April forecast.

In the period between the two meetings of the Committee, the liquidity of the banking system in domestic currency additionally increased, which, in addition to the realization of the regular budget expenditures, was also due to the commencement with the application of the sixth package of fiscal measures for recovery of the economy from the adverse effects of the pandemic. In such circumstances, banks had a relatively low need to trade in short-term denar liquid assets on the money markets. The gradual recovery of the economic activity in the country in May contributed to an increased need for foreign currency from the corporate sector, but also the highest monthly net supply of foreign assets from natural persons on the foreign exchange and on the currency exchange market, from March 2020 onwards. The banks met the net demand for foreign currency from the clients from their foreign assets, due to which the National Bank made no interventions on the foreign exchange market.  

In May, the accelerated process of vaccination of the population and the support from policy makers contributed to maintaining the investors' expectations on the international financial markets for recovery of the economies around the world. In such circumstances, the upward trend of the stock exchange indices of shares on global markets continued, reaching new historically highest levels. The prices of government bonds in the USA and in the euro area registered no significant shifts during the month and were maintained at relatively high levels, while the value of the US dollar against the euro moderately decreased, mainly under the influence of the prospects for delaying the tightening of the Fed's policy and the proposal for a substantial fiscal stimulus in the USA.

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 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.