Skopje, 20 May 2023 

Inflationary pressures in the Macedonian economy mainly arise from the prices of primary products with a high share of food and energy in the consumption basket. In conditions of increased uncertainty, due to external shocks, certain pressures on currency preference have been observed. The National Bank responded appropriately to the inflation growth and the higher propensity for foreign currency, by tightening the monetary policy accordingly. This is indicated in the conclusions of this year's economic and financial dialogue of the European Union with the countries of the Western Balkans and Turkiye, which aims to prepare the countries for the future participation in the coordination of the EU economic policies (European Semester). The conclusions point out that despite the pandemic and the energy crisis, the banking sector is stable, i.e. highly capitalized and liquid, with a low share of non-performing placements. The introduction of the anti-cyclical capital buffer also contributes to this, and the introduction of additional macroprudential measures would mitigate the potential risks in relation to real estate lending. The conclusions emphasize the need for further vigilant monitoring and appropriate policy response if necessary, in order to maintain price stability in the medium term. For the realization of these goals, the conclusions state the need of maintening and preserving the independence of the central bank.

Within the economic and financial dialogue of the European Union with the Western Balkan countries and Turkiye, which is conducted on the basis of the submitted Program for Economic Reforms 2023 - 2025 by the candidate countries, the EU institutions give their review and assessment of the reforms in different spheres of the economy and the financial system. This year, the average realization of the recommendations for our country is 48.6%, which is an improvement compared to last year (43.1%) and also the second result in the group of countries. Within the recommendations from the scope of the National Bank's operations, the recommendation regarding careful monitoring of inflation and readiness to tighten the monetary policy if necessary to maintain medium-term price stability, is the only recommendation for our country that has been assessed as "fully implemented". The recommendation for further improvement of the regulatory framework for the banking system has been assessed as "significantly implemented", in accordance with the adopted Law on Financial Stability, as well as the expectation for the adoption of the Bank Resolution Law.

At the dialogue with the EU, the National Bank was represented by the Vice Governor Emilia Nacevska. In her presentation, she noted that policy makers are faced with serious challenges in managing multiple and overlapping crises. Central banks have replaced long-standing loose with a tight monetary policy. At the same time, our central bank, as well started to gradually adjust the monetary policy, in accordance with the new challenges. Speaking about the response of the National Bank, Vice Governor Nacevska emphasized that the monetary policy start reacting at the end of 2021, first through interventions in the foreign exchange market to preserve the stability of the denar exchange rate, and from April 2022 through a gradual but constant increase on the interest rate of monetary instruments. Additional measures were also taken regarding the reserve requirement, aimed at encouraging the growth of savings in domestic, instead of in foreign currency, with macroprudential measures also being adopted to improve the resilience of the banking sector. “The change in the monetary policy influenced the financing conditions, stabilized expectations and contributed to inflation deceleration", Nacevska said , explaining that the inflation in our country reached its peak at the end of last year and since then the rise has been slowing down. This year, taking into account the reduction of global price pressures, as well as tight financial conditions, inflation is expected to stabilize at 8 - 9%, before returning to the historical "normal level" of around 2%.

The Vice Governor emphasized that despite the constant various crisis situations, the stability of the denar exchange rate was successfully maintained, which, in turn, is the anchor of both price and financial stability. At the same time, the measures taken by the National Bank contributed to encouraging denar savings, with visible effects in the currency structure of savings deposits since the end of 2022.