Skopje, 25 December 2022

"The further monetary policy path and response in our country will depend on two crucial factors - inflation and foreign exchange market", said the National Bank Governor, Anita Angelovska Bezhoska in an interview with Bloomberg Adria and adds that "in spite of the risks to inflation, the foreign exchange market is stabilized and favorable". She emphasized that there should be no doubt that central banks will embark on measures to achieve medium-term price stability. 

In the interview, the governor referred to the central banks’ responses to the current crisis and said that they depend on the structural economic factors, the monetary strategy and the nature of inflation. She took the Fed and the ECB as an example. They both started tightening the monetary policy, but with certain differences. The Fed started earlier and intervened in interest rates and liquidity, while the ECB responded later by changing the interest rate, but has not yet started reducing liquidity. One of the factors is that the economic cycle in these two economies is different, that is, the US economy recovered much faster with pressures on demand, while in the EU, the recovery was slower.

"Considering that our monetary strategy is aimed to maintain a stable denar exchange rate, there are two key factors that determine the monetary policy setup. The first factor is inflation and the second is the foreign exchange market, i.e. the level of foreign reserves, which is key for us to maintain exchange rate stability. We saw initial pressures on these two factors as early as late last year, when the energy crisis came to the fore, which put pressure on the foreign exchange market and inflation. That is why last year we started gradually tightening the monetary policy, using a wide range of instruments. We started intervening on the foreign exchange market and continued with the interest rate. We did not only changed the policy rate, but also the interest rate on overnight deposits, seven-day deposits, overnight loans, etc. We changed the reserve requirement rate four times," said the governor.

The governor pointed out that the foreign exchange market is not only stable, but also favorable, and the central bank was purchasing foreign currency on the foreign exchange market sometime until the end of November, which significantly compensated the loss of foreign reserves since the beginning of the year when the crisis escalated. Also, a significant support for the exchange rate stability and foreign exchange potential is the new arrangement with the IMF of Euro 530 million. The governor also pointed to the ECB setup as a factor that affects our monetary policy, taking into account the denar peg to the euro.

Since inflation growth differs from one country to another, the governor highlighted the structural factors as well as the types of measures taken by policy makers.

"Total trade openness in our country is 140% of GDP, compared to 70% in the EU. This means that we have fewer domestic resources to cushion those external shocks. The energy dependence and energy intensity are crucial. To produce one unit of GDP, we consume on average three times more energy than the EU. In our country, food and energy in the consumption basket account for over 50% to 55%, and in the EU, slightly over 30%. Also, the measures taken are very important: are they aimed to prevent price rise and to what extent, or are they rather targeted. Let's not forget the issue of the competition level in the economy, which is a very significant market mechanism for price movements. Due to all these factors, a very same global shock hits different economies with different intensity", says Angelovska Bezhoska.