Skopje, 24 July 2024
The National Bank policy rate remains 6.30%
On 23 July 2024, the National Bank’s Executive Board held a regular meeting on the monetary policy setup 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 current monetary policy setup is assessed as 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 further slow down inflation and maintain the exchange rate stability. Also, the latest changes in reserve requirement which apply from June 2024, will contribute to further support to the current monetary policy setup.
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 and inflation expectations on a more permanent basis, taking into account the risks associated with the domestic factors and geopolitical tensions. The annual inflation rate in June significantly slowed down, primarily in the part of the food and core component and amounts to 3.2%. Regarding the prices of primary products in markets, the latest forecasts have been revised moderately downwards, but they are still quite volatile, and the unstable geopolitical context and climate factors continue to create uncertainty and risks for the coming period. Hence, it was assessed that there is a need for further prudent monetary policy conduct. Regarding the European Central Bank (ECB) policy, at the latest meeting in July it was decided to keep the same policy rates (after the reduction of 0.25 percentage points in June), whereby the tighter and prudent monetary policy is still maintained.
The foreign exchange market is stable and the movements are favorable. The level of foreign reserves at the end of June was Euro 4,337.5 million, which is an appropriate level for maintaining the stability of the exchange rate of the domestic currency. The foreign exchange market developments are still favorable and contribute to net purchase of foreign currency by the National Bank since the beginning of the year, amid solid inflow of foreign currency on the currency exchange market. Regarding the latest available data from the external sector, the trade deficit in April and May 2024 is in line with the expectations of the April forecasting round. The developments on the currency exchange market in the second quarter are slightly lower than the forecasted net inflows from private transfers.
The economic growth in the first quarter of 2024 slightly accelerated, in line with the National Bank forecasts, although with more moderate intensity than expected. The real growth of the domestic economy amounted to 1.2% annually, amid further quarterly growth as well. The currently available high-frequency data for the second quarter of 2024 suggest further acceleration in the growth due to the performances in the services sector, which is also in line with the forecasts for the second quarter. Thus, construction registered a significantly faster real annual growth, and a small increase in the real growth rate was registered in catering and tourism. In addition, trade turnover also registered a significantly slower real annual decline, however the fall in industrial output deepened. 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, banks’ deposit potential in June 2024 grew at a solid rate, but below the expectations, and the growth of credit activity slightly exceeded the expectations. Moreover, denar and long-term savings increased in June, supported by the National Bank measures.
Generally, the latest developments in the key macroeconomic indicators are currently close to the latest forecasts. However, there is a need for close monitoring of the risks from the external environment and the domestic factors of inflation, i.e. further precaution in the conduct of macroeconomic policies that affect the demand in the economy. 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.