MIA News

Basic interest rate unchanged, inflation dropping, economic growth below projections: central bank

Skopje, 13 March 2024 (MIA) – The National Bank’s Operational Monetary Policy Committee has assessed that the interest rate of central bank bills should remain unchanged at 6.3 percent, whereas interest rates of overnight and 7-day deposits to continue at 4.2 and 4.25 percent respectively, the central bank said on Wednesday.

The Committee assessed that the current setup of the monetary policy is appropriate to the economic circumstances. A decision was taken by the end of February to change the setup and manner of maintaining the mandatory reserve. The measures mainly focus on further support to the denar and increase of long-term savings in the banking system. It is expected that the current level of the interest rates, along with the changes in the mandatory reserves and the undertaken macroprudent measures, will contribute to a further slowdown of the inflation and maintenance of the exchange rate stability.

Domestic inflation is slowing down and dropped to 3 percent yoy in February, amid a significantly reduced pressure of food and energy prices, along with lower price pressures from less-variable categories. The February inflation rate is close to the one in the Eurozone. The inflation level is still above the historic average and risks are still present due to stock market developments, uncertainty because of ongoing military conflicts and the end of the temporary measures for a portion of the domestic food products.

Situation on the foreign currency market is stable and trends are favorable. The FX reserves by the end of February amount to EUR 4.3 billion, which is appropriate for maintenance of the stability of the domestic currency rate.

Economic growth in the final quarter of 2023 and the year as a whole is below projections, which points to a sharper slowdown of economic growth than expected. Namely, the real growth of the domestic economy in 2023 stands at 1 percent, considering the 0.9-percent growth in Q4. Regarding growth risks in the coming period, they continue to exist and are related primarily to external developments but also the intensity of realization of domestic infrastructure projects.

According to preliminary data for February, deposits continue to rise, stronger than expected. The credit activity of banks is also accelerating, with a current annual growth above projections for the first quarter.

In general, the environment for the monetary policy is moderately more favorable than expected. Nevertheless, the pace and factors that affect inflation should be monitored and caution should be used in the macroeconomic policies that impact demand, including through the labor market. The National Bank is ready to use all instruments and undertake measures that lead to maintenance of the exchange rate stability, stable inflation and price stability in the medium term, reads the press release.