Skopje, 18 September 2024 (MIA) — Recent economic developments have made it possible to start gradually and cautiously normalizing the national monetary policy and to reduce the interest rate on Central Bank bills by 0.25 percentage points, to the level of 6.05 percent, according to a National Bank of North Macedonia press release.

Overnight and seven-day loan interest rates remain at the levels of 4.20 percent and 4.25 percent respectively. The CB bill supply at the bank's regular auction remains unchanged at Mden 10 billion.

According to the release, the central bank's executive board responsible for setting its monetary policy reviewed the latest data on the global and domestic economy as well as the latest developments on the international and domestic financial markets.

The board decided to maintain a prudent monetary policy, considering the still existing external risks as well as domestic factors that impact aggregate demand.

Current interest rates — alongside previous changes to the reserve requirement and macroprudential measures taken, including the gradual increase of the countercyclical capital buffer rate (1 percent as of July 2024) — are still expected to contribute to maintaining the exchange rate and prices stable in the medium term.

"At the same time, the changes in the required reserve instrument, in effect since July 2024, additionally support the monetary policy setting," the release added.

According to the central bank, the monetary policy decision was based on its evaluation of inflation, which was as expected, and on favorable foreign exchange rate movements.

The annual inflation rate slowed down significantly in August, amounting to 2.2 percent, as the economy saw a drop in food and energy prices and a slowing down of base inflation, the National Bank noted.

According to the monetary authority, the inflation rate may fluctuate somewhat in the near future, but on average, it is expected to be close to the projected 3.5 percent through the end of 2024.

The Forex reserves at the end of August amounted to EUR 4,469.8 million, which is appropriate for maintaining the domestic currency rate stable, it said.

The trade deficit in July 2024, according to the latest available data, is in line with the April projection cycle expectations, the bank said.

In line with the European Central Bank policy, which the National Bank takes into account, at the last session in September, for the second time this year, a decision was made to reduce the interest rate by 0.25 percentage points.

"Economic growth in the second quarter of 2024 accelerated and was almost identical to the National Bank projections," the release said, adding that the real growth of the domestic economy was 2.3 percent on an annual basis.

Regarding the risks for growth in the near future, they are mainly related to the developments in the external environment and the implementation of domestic infrastructure projects, the central bank said.

In the monetary sector, deposits are growing and slightly stronger than expected. The credit activity of banks is also moderately slowing down, with a current annual growth slightly above first quarter projections.

"The latest developments regarding the key macroeconomic indicators as well as the insights regarding their future course, have created the opportunity to reduce the benchmark interest rate.

"However, the National Bank maintains a prudent approach in further decisions on monetary policy.

"The risks related to the external environment should continue to be monitored, above all primary product prices, which are still influenced by the unstable geopolitical context and climate change," the central bank said.

It added that conducting prudent macroeconomic policies would remain the bank's priority in the future, too, in order to maintain exchange rate and price stability in the medium term. mr/