Skopje, 17 April 2025  

Monetary policy retains its prudent character - interest rates are unchanged

On 17 April 2025, the Executive Board held its regular meeting about the setup of the monetary policy of the National Bank. At its meeting, the Board discussed the latest data and information on the global and domestic economy and the latest developments on the international and domestic financial markets in the context of the monetary policy setup.

The current monetary policy setup is assessed as appropriate to the economic conditions, amid more pronounced adverse risks, especially from the external environment. Hence, at its meeting, the Board decided to keep the interest rate on CB bills at the level of 5.35%, and to maintain the interest rates on overnight and 7-day deposit facilities at the levels of 3.95% and 4%, respectively. The supply of CB bills at the regular auction will be also unchanged, i.e. it will amount to Denar 10 billion. This decision results in retaining the prudent character of the monetary policy.  The overall set of measures, i.e. the current level of interest rates, the changes in reserve requirement and macro-prudential measures taken, will contribute towards medium-term price stability and maintenance of the stability of the exchange rate of the denar against the euro. Regarding the policy of the European Central Bank (ECB), at the latest meeting in April it was decided to reduce the interest rates by 0.25 percentage points.

The realization with the inflation remains one of the key segments which impose a need for vigilance, in circumstances when the risks, primarily associated with the external environment become more pronounced and extremely unpredictable. Namely, in circumstances when the geopolitical conditions are still unstable, the changes in the customs policies on a global level further worsen the prospects for the trade and economic activity and increase volatility, on both the world markets of primary products and on the capital markets. In addition, the risks associated with the domestic factors that affect the aggregate demand were also taken into account.

The annual inflation rate in March 2025 decelerated significantly to 2.7%, a level which is lower than expected, which is partly influenced by the current short-term measures to limit the price growth. Inflation, on average, for the first quarter is slightly higher than expected according to the October forecast. Theslowdown in the annual inflation rate in March is mostly due to the slower growth of food prices, due to the exhaustion of the effect of the lower base effect and the further downward effect of the current short-term measures to limit the price growth (which expire at the end of April). Regarding the other components, the growth of the core component of inflation decelerated, while the fall in energy prices accelerated. In terms of inflation expectations, the European Commission’s March surveys show that the consumers’ expectations for a moderate price decline in the next period prevail. The latest forecasts for the market prices of primary products for the coming period are unchanged predominantly in an upward direction, which together with the increased uncertainty and market volatility, points to increased risks and a need for vigilance.

The foreign exchange market is stable. The level of foreign reserves at the end of March was Euro 4,788.1 million, which is an appropriate level for maintaining the stability of the domestic currency exchange rate. The foreign reserves performances were close to the expectations for the first quarter of 2025, while the interventions on the foreign exchange market were moderately more positive since the beginning of the year. Regarding the latest available external sector data, the developments on the currency exchange market as of March point to more moderate net inflows from private transfers compared to the forecasts for the first quarter, while the trade deficit in the first two months of the year is currently moderately higher than expected for the first quarter.

The economic growth in the last quarter of 2024 slightly accelerated and reached 3.2%, almost at a level of the forecasts of the National Bank (3.1%). Available high-frequency data for the first quarter of 2025 point to further, yet moderate, growth, with weaker movements in trade, construction and tourism for the time being, and stronger movements in catering and industry. The external risks to the growth in the following period are mostly downward, while risks from the domestic environment are still related to the speed and volume of implementation of the domestic infrastructure projects.

The monetary sector performances are better than expected, which indicates further stronger credit support of the economy. Namely, in accordance with the March data, deposits and loans registered solid growth rates, which are higher than expected for the first quarter of the year.

Overall, recent developments in the key macroeconomic indicators are mainly favorable, but the risk perceptions in terms of their future path impose further prudent conduct of monetary policy. Namely, the risks associated with the external environment are more pronounced, while the domestic factors which can affect the demand and the price dynamics in the following period are closely monitored. The National Bank remains prepared to use all the necessary instruments and to take appropriate measures that will contribute to maintenance of the stability of the exchange rate of the denar against the euro and the medium-term price stability.