Regular meeting of the NBRM's Operational Monetary Policy Committee

On 12 December 2017, the NBRM's Operational Monetary Policy Committee held its regular meeting and discussed the situation in the domestic economy, the developments on the international and domestic financial markets and the indicators of the domestic economy in light of the monetary policy setup.

The Committee assessed that the monetary setup is appropriate and decided the CB bills auction on 13 December to be conducted under unchanged conditions, i.e. to offer CB bills in the amount of Denar 25,000 million at interest rate of 3.25%.

The Committee reviewed the latest developments in the domestic economy in the context of the recent macroeconomic forecasts, and concluded that the economic fundamentals are sound, without any imbalances in the economy. However, the Committee emphasized that there are still risk segments for which it will take time to improve the expectations and confidence of the economic agents. In such conditions of sound economic fundamentals, but still present risks, vigilance is required regarding the changes in the monetary setup.

Analyzing the latest macroeconomic indicators, after the decline in the activity in the first half of the year, the estimated GDP data for the third quarter indicate a certain recovery and moderate increase of 0.2% on an annual basis. From the standpoint of the structure, the growth of the activity in the third quarter was due to the export and private consumption, while the investment activity continued to decrease, but at a slower pace compared to the previous quarter. These performances do not deviate significantly from the expectations for the third quarter. The number of available high frequency indicators for the activity in the last quarter of the year is small, making it difficult to give a more precise landscape of the developments in this period. However, for the time being, these indicators have suggested somewhat better situation in the economy compared to the previous quarter.

November inflation data show continuity of the current developments, i.e. moderate acceleration in the price growth, with average annual inflation rate in the first eleven months of 1.3%. Inflation growth is mostly due to core inflation, and partly to energy prices. Inflation performance is moving within the forecasts.

Analyzing the external sector indicators, the balance of payments data as of September show a moderate current account deficit of 0.6% of GDP, which is smaller, compared to the previous year, yet within the expectations. As forecasted, financial account registered net outflows based on repayment of long-term debt, and outflows are typical for both currencies and deposits. On the other hand, short-term debt flows and foreign direct investments created net inflows in the first nine months of the year. The available external sector data for the last quarter indicate somewhat better performances in the trade balance and the private transfers than expected. The latest available data on foreign reserves for the last quarter show moderate growth, with favorable foreign exchange market developments and net purchase of foreign currency during the quarter. The movements of reserves are within the expectations, and all foreign reserves adequacy indicators remain within the safe zone.

The initial monetary data for November, similar to the previous month, show a solid monthly increase in the total deposits in the banking system as a result of household deposits, but also of the growth of corporate deposits. Lending on the credit market continued to increase rapidly, whereby the distribution of loans to the households sector and the corporate sector is almost equal. For the time being, it is estimated that deposit and credit flows move as expected.

Favorable foreign exchange market developments since August continued in the first half of November, thus improving banks’ external liquidity and providing for further National Bank’s purchase of excess foreign currency of Euro 19.6 million. These movements temporarily ceased at the end of November when the demand for foreign currency by the corporate sector increased, which was mostly compensated by the banks' own funds and to a lesser extent by the National Bank (Euro 6 million). In the first week of December, there was a gradual stabilization of demand, which, in conditions of seasonal increase in the supply of foreign currency by exchange offices, allowed reduction of the interbank exchange rate.

In the period between the two monthly meetings of the Committee, the banks’ liquidity potential remained relatively stable and solid. Banks placed the excess available funds in 7-day deposit facilities with the National Bank, but also in long-term and high-yielding investment instruments. Given the relatively high liquidity, in November, banks’ reported decreased needs for financing through the money market, where they almost equally traded interbank deposits and securities on the secondary market. 

The December period of the reserve requirement expects seasonal growth of banks’ denar liquidity usually used for credit support to the private sector at the end of the year.

In November, the euro exchange rate on the international financial markets strengthened, and the government bond yields increased given the perceptions of lower political risks and moderately higher price movements in the euro area. On the other side of the Atlantic, there was further leveling of the yield curve of the US government bonds, due to the expectations that the Fed would increase interest rates at the meeting in December. Oil price has increased in anticipation of the decision about further reduction of the oil supply by OPEC after March 2018.

In summary, at the meeting, the Committee concluded that taking into account the current economic and financial conditions and the existing risks, the current monetary setup is appropriate. The external position, as measured by the performance in the current account of the balance of payments, is generally within the expectations and shows maintenance of sound economic fundamentals.

In the period ahead, the National Bank will closely monitor all economic indicators and developments in the domestic economy, while the future changes in the monetary policy will greatly be conditioned by the developments in the domestic economy and the external sector.

Governor's Office