Skopje, 17 April 2024   

The National Bank policy rate remains 6.30%

On 16 April 2024, the National Bank’s Operational Monetary Policy Committee held a regular meeting and 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 Committee assessed that the monetary policy setup is appropriate to the economic conditions. Thus, the interest rate on CB bills remains 6.30%, while the interest rates on overnight and 7-day deposit facilities at the levels of 4.20% and 4.25%, respectively. The supply of CB bills at the regular auction also remains unchanged and amounts to Denar 10 billion. The current level of interest rates, together with the changes in reserve requirement and macro-prudential measures taken, are still expected to contribute to further slowdown in inflation and maintenance of the exchange rate stability. Moreover, the latest changes in reserve requirement, which started to be applied from June 2024, provide further support to the prudent character of the monetary policy.

Amid stable foreign exchange market, the main emphasis when making the decision to maintain the current monetary policy setup was placed on the need for stabilization of inflation at the historically low levels and inflation expectations on a more permanent basis, taking into account the present risks, which are largely associated with the geopolitical tensions. Namely, inflation as expected accelerated in March 2024, i.e. to 4% on an annual basis (3% in February), given the cessation of the validity of the measures for guaranteed prices of part of the food products and beverages and for raising/reduction of some import duties. However, the performance is below the forecast of the National Bank, with significantly reduced pressure from food and energy prices, but also lower price pressures from the less volatile categories in the first quarter, in accordance with the monetary measures taken. The primary commodity prices in markets continued with a downward adjustment, with the exception of oil which registered certain fluctuations. From the beginning of the year, inflation is lower than expected, but its level is still above the historical average, while the risks with respect to the future dynamics of prices are still present. Hence, it was assessed that there is a need for further caution in the policy conduct, including policies that affect the demand in economy. Regarding the policy of the European Central Bank (ECB), at the latest meeting in April it was again decided to maintain the policy rates at the same level.

The foreign exchange market is stable and the movements are favorable. The level of foreign reserves at the end of March was Euro 4,287.1 million, which is an appropriate level for maintaining the stability of the exchange rate of the domestic currency. The foreign exchange market developments are favorable and contribute to interventions with net purchase of foreign currency by the National Bank, amid moderately reduced net demand from the corporate sector and further high inflow of foreign currency on the currency exchange market. Regarding the latest available data from the external sector, the trade deficit in the first two months of 2024 is slightly higher than expected according to the October forecasting round. The developments on the currency exchange market as of March are slightly lower than the forecasted net inflows from private transfers.

The economic growth in the last quarter of 2023, as well as for the entire year, is below the forecasts, which points to stronger deceleration in the economic growth than expected. Namely, the real growth of the domestic economy in 2023 equaled 1%, amid GDP growth in the fourth quarter of the year of 0.9% annually. The available high frequency data for the first quarter of 2024 point to annual growth in the industrial output and catering, amid slight real annual decline in total trade turnover and in construction. However, data availability is limited and is not sufficient to make a more accurate assessment. Regarding the risks to the growth in the next period, they are still present and are primarily related to the developments in the external environment, but also to the intensity of implementation of domestic infrastructure projects.

In the monetary sector, according to the initial data for March 2024, deposits grow at a similar pace as the previous month, although with slightly stronger intensity than expected. On the other hand, the banks' credit activity moderately decelerates, but the annual growth slightly exceeds the forecasts for the first quarter.

In summary, the environment for conducting the monetary policy is moderately more favorable than expected. However, the risks associated with inflation impose a need for further careful monitoring of the dynamics and factors of inflation and precaution with respect to the conduct of the macroeconomic policies which affect the demand in the economy, including through the labor market where there are high real wage growth rates. 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, stabilization of inflation expectations and to medium-term price stability.