Today, the National Bank of the Republic of Macedonia Council has held its seventh session

Today, the National Bank of the Republic of Macedonia Council has held its seventh session, and has reviewed and adopted the Quarterly Report. It has assessed that, taking into account the movement of key monetary policy indicators in line with the forecast, the favorable economic fundamentals and the absence of imbalances in the economy, but still present risks in the second quarter, the monetary setup is currently appropriate.

Risks to the macroeconomic forecasts of the National Bank are similar to the April cycle, yet smaller. This is especially true for the domestic risks, given the gradual stabilization of the political situation in the country. Risks arising from the global environment are assessed as similar to those outlined in the April forecast cycle.

Comparison between the current macroeconomic performance and the expectations within the April forecast cycle shows that, with the exception of the economic activity, thus far, there are no major deviations in the other segments. The greatest deviation was registered in GDP growth, whereby the published data for the first quarter show stagnation of the activity in the domestic economy, despite the expectations for moderate economic growth in the April forecast cycle. The downward deviation is due to the higher growth in the import of goods and services than forecasted, which, amid a growth rate of real exports in line with the April forecast, resulted in negative contribution of the net exports to the growth, despite the expectations for its positive contribution in the first quarter of the year. The weaker than expected growth in private consumption also had an additional downward effect.

 On the other hand, the dynamics of investment activity was somewhat better than expected. Analyzing the structure, exports still have the highest individual positive contribution to the annual GDP growth, mainly as a result of the activity of the new industrial capacities, with recovery observed in some of the traditional sectors.

In the second quarter, the rise in domestic prices was expected to accelerate to 1.2% on an annual basis, versus 0.5% in the previous quarter. However, this is a slight downward deviation compared to the April forecasts, which is largely due to the lower annual growth of energy prices than expected.

For 2017, there are no expectations for significant inflation deviations from the April forecast, but expectations for growth of prices of 1.3%, which would further moderately accelerate to 2% in 2018.

The available external sector data for the second quarter are still insufficient to make conclusions about the balance of payments position compared to the April forecast, but indicate favorable developments. Favorable performances are expected within the current account, with possibilities for smaller deficit than forecasted. Namely, the latest data on purchased foreign currency on the currency exchange market as of the second ten-day period of June indicate higher net inflows than forecasted, which creates an opportunity for better performances in the secondary income in the second quarter, while the foreign trade data, as of May, show that the performances are within the forecast. The level of foreign reserves throughout the entire period has moved in a safe zone.

In the second quarter of the year, the lending activity of the banking sector increased quarterly, versus the fall in the previous quarter, which is usual for this period. The total deposit potential registered a slight quarterly increase, as opposed to the decrease in the previous quarter. The sector-by-sector analysis shows that the growth is entirely due to the higher household deposits, with the increase in denar deposits.

In summary, the performances do not indicate significant deviations from the April scenario in the segments that are crucial to the monetary policy, whereby there are still assessments for soundness of the economic fundamentals.

At today's session, the National Bank Council has reviewed and adopted the Financial Stability Report in the Republic of Macedonia for 2016, and has concluded that the financial system and the Macedonian economy faced a strong challenge to the stability due to the domestic political developments that burst in an orchestrated spread of speculations in April and May. However, the financial stability was maintained in 2016 as well. Here, the measures undertaken by the National Bank for maintaining the foreign exchange rate stability played a crucial role aimed to maintain price stability as a primary objective, but also to support financial stability as the second legal objective of the National Bank, along with the appropriate liquidity management by the banks that experienced the consequences of the April and May events the most.

Deposit withdrawal was also accompanied by increased propensity of households to hold foreign currency, which caused higher demand for foreign currency on the currency exchange market and the foreign exchange market. In the period April-May, the National Bank intervened with net sale of foreign currency, and at the beginning of May increased the policy rate, while reducing the offer of CB bills in line with the liquidity needs of the banks. In addition, the National Bank increased the reserve requirement for denar deposits with FX clause and reactivated the auctions for foreign currency deposits of banks with the central bank. All these measures, coupled with appropriate liquidity management by the banks, which smoothly met all deposit payment requirements, ensured stabilization of the expectations of the economic agents and subsequently, positive trends on the foreign exchange market, as well as ease of the unfavorable deposit market developments. Considering the stabilization of the movements in the second half of the year and the further retention of the assessments for stability of the domestic economy fundamentals, in October, the National Bank ceased to hold foreign currency deposit auctions, and in December started to normalize the monetary policy by cutting the policy rate on three occasions, thus reversing it to the level from early 2016 (3.25%).

Aggregately, the corporate sector in 2016 demonstrated resilience to the adverse effects of the unstable domestic political environment and retained the operational performance, as reflected through the growth of added value, profitability indicators and retained stable dynamics of indebtedness indicators and efficiency in the use of funds.

The indebtedness of the household sector is not high and at the end of 2016, it accounted for 23% of GDP. Amidst favorable developments in the labor market and wages, household debt continued to grow in 2016 at a faster pace than the increase in the financial assets and disposable income, whereby there was no significant credit risk materialization in the household portfolio.

The banking sector successfully overcame the crisis year, retaining its stability. Only the liquidity indicators registered significant changes in the first half of 2016, but remained at a satisfactory level, and got back on track in the third quarter. The total deposits with the banking sector increased by 5.4%, and the credit growth, when controlled for the effect of the regulatory measure for full write-off of nonperforming loans fully covered by impairment, remained at a solid level of 6% at the end of the year. The solvency and capitalization ratios of the banking system remained high, notwithstanding the decrease that mostly stemmed from the faster growth of risk-weighted assets. Other financial system segments, such as pension funds, insurance companies, investment funds and financial markets, fully maintained their financial stability.

The National Bank remains fully dedicated to closely monitor and assess the regulatory setup and will, if necessary, take new measures and actions as required by the financial stability parameters. 

At today's session, the National Bank of the Republic of Macedonia Council, based on the schedule and pace of activities, adopted the Decision on issuing and the Decision on putting into circulation the collector coin "Saint Seraphim of Sarov, the Wonderworker". The coin will be issued in a denomination of 2000 denars, in 50 pieces.

The Council also discussed other matters within its jurisdiction.  

NATIONAL BANK OF THE REPUBLIC OF MACEDONIA