Skopje, January 9, 2013

Press release of the NBRM

On January 8, 2013 a regular meeting of the Operational Monetary Policy Committee was held, with focus on the trends in the international and domestic financial markets in December, as well as the annual movements in 2012, the latest macroeconomic developments in the domestic economy and the liquidity in the banking system.

Globally, positive market developments in the Euro area were registered, owing mainly to the ECB measures (announcement of the mechanism for unlimited purchasing of government securities, under the conditions provided in accordance with the provisions of the mechanisms for providing financial assistance) and the decisions of the Presidents of the European countries (starting the project for establishing a banking union, determining more loose timetable for fiscal consolidation in Portugal and Spain, approving a credit line in the amount of Euro 100 billion for recapitalization of the Spanish banks and rescheduling of Greece's public debt at the end of November). In such a constellation, it may be concluded that even though 2011 ended with a high uncertainty about the future of the Euro area, in 2012 activities were undertaken that have strengthened the relationships and have significantly reduced the risk of separation of the monetary union.

Regarding the domestic financial markets, the turnover on the interbank deposit market experienced moderate monthly growth in December. On annual basis, the turnover on the interbank deposit market was higher by 32%, due to the increased commercial activity with deposits with maturities longer than one day, during the period of application of the new operational framework. In December, favorable trends on the foreign exchange market were registered again. Thus, amid higher supply of foreign exchange, in the transactions with customers the banks have made net purchase of foreign currency. The high offer of customers spilled over the interbank market, and in December the highest monthly turnover during 2012 was registered. In such circumstances, the National Bank purchased foreign currency from the market makers.

Also, at the session of the Operational Monetary Policy Committee the latest macroeconomic developments were reviewed. It was concluded that in the period since the last auction of Central Bank bills, movements in the Macedonian economy, observed from the point of view of the monetary policy stance, are still relatively favorable. Namely, the trend of relatively favorable developments in inflation and foreign reserves continued. Inflation data for December showed further stabilization of the price level. The average inflation for the year is within the projections, while the annual growth of prices in December was lower than previous expectations. Such dynamics of domestic prices leads to the gradual easing of inflationary pressures and reduction of the risks around future inflation. Considering the current assumptions, the latest assessments show that in 2013, the inflation would be lower than previously expected. The favorable foreign exchange market in December allowed higher than expected growth of foreign reserves, showing a better starting position of foreign reserves at the end of the year compared with the expectations. It is expected that favorable movements in foreign reserves will continue throughout 2013, during which they will continue to be maintained around the adequate level. Despite the improved situation in the third quarter, the activity in the real sector is relatively weak and indicates absence of pressures on inflation and foreign reserves through demand. Credit support to the economy through bank loans is still present, but banks show restraint for larger lending. The latest data on the credit market show further slowing of the credit growth.

In conditions of reduced inflation risks, favorable movements in the foreign reserves, slow recovery of the real sector and slowdown in the credit market activity, at this session of the Committee it was decided to reduce the maximum interest rate on CB bills by 0.25 percentage points, by which it will equal 3.5%, and the interest rate on standing seven-day deposits, from 2% to 1.75%. In accordance with the projected level of liquidity, the Committee decided to bid CB bills in the amount of Denar 24,500 million at the auction, which is lower than the sum due (Denar 26,000 million). It is expected that further monetary policy easing will contribute to the relaxation of credit conditions and increased economic activity.

Possible deterioration in the global economic environment, as well as uncertainty about the transmission effects on inflation in the next period are still the major risks for the macroeconomic developments in the coming period. NBRM will continue to closely monitor future macroeconomic developments and if necessary, it will react through the monetary policy in order to maintain the macroeconomic stability and meet the monetary goals.


                                                                                                                           Governor's Office


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