Skopje, 12 June 2024 (MIA) - The current setup of the monetary policy is appropriate to the economic circumstances, and the interest rate on CB bills remains at the level of 6.30%, while the overnight and seven-day loan interest rates remain at 4.20 % and 4.25 %, respectively, the National Bank’s Operational Monetary Policy Committee decided at a session on Tuesday. 

The supply of CB bills at the regular auction also remains unchanged and amounts to Mden10 billion. The maintenance of the current level of interest rates, together with the changes to the reserve requirement and the macroprudential measures taken so far, will contribute to further slowing down inflation and keeping the exchange rate stable. In addition, the latest changes to the mandatory reserve instrument, the application of which starts in June, provide further support for the prudence of the monetary policy, said the National Bank. 

The central bank notes that the latest decision on the monetary policy is based on the need to stabilize inflation expectations and inflation on a more permanent basis. Inflation in May 2024 moderately accelerated to 4.5% annually, with a positive contribution to growth both from the base inflation and from the other components. However, the dynamics of inflation in May does not deviate from the movement within the spring projections of the National Bank. According to these projections, an average inflation of 3.5% is expected throughout 2024. Regarding the prices of primary products on the stock exchanges, the latest projections have been revised moderately upwards, i.e. a smaller decline is expected this year, and the unstable geopolitical context continues to create uncertainty and upward risks for the coming period. Hence, it has been assessed that further caution is needed in conducting monetary policy. As regards the policy of the European Central Bank (ECB), a decision was made at the June session to reduce basic interest rates by 0.25 percentage points, in accordance with the expectations of the markets. The ECB pointed out that despite the reduction, with the new level of interest rates, the tightness and caution of the monetary policy is still maintained, the National Bank said. 

The FX reserves by the end of May amount to EUR 4,293.6 billion, which is appropriate for maintenance of the stability of the domestic currency rate. Movements in the foreign exchange market are still favorable and contribute to interventions with a net purchase of foreign exchange by the National Bank since the beginning of the year, with a solid inflow of foreign currency in the foreign exchange market. Regarding the latest available data from the external sector, the trade deficit in April 2024 is in line with the expectations from the April projection cycle. Realizations on the foreign exchange market in the second quarter, as of the second decade of May, are currently close to the projected net inflows from private transfers.

Economic growth in Q1 2024 slightly accelerated, in line with the projections of the National Bank, but more moderately than expected. The real growth of the domestic economy is 1.2% on an annual basis, with further growth on a quarterly basis. The available high-frequency data for the second quarter of 2024 indicate a high real annual turnover growth in total trade, while industrial production recorded a slight decline. However, the availability of data is limited and not sufficient for a more accurate assessment. Risks for growth in the coming period still exist and are primarily related to developments in the external environment, as well as the intensity of the implementation of domestic infrastructure projects.

In the monetary sector, according to the initial data for May 2024, the deposit potential of banks continues to grow, similar to expectations, with slightly stronger than projected growth in loans.

The National Bank carefully monitors the macroeconomic data and risks and is prepared to use all the necessary instruments and to take measures that will contribute to maintenance of the stability of the exchange rate, stabilization of inflation expectations and to medium-term price stability, reads the press release. 

Photo: MIA