Basic interest rate remains unchanged at 2.5%
Skopje, 10 August 2022 (MIA) – The basic interest rate remains unchanged at the level of 2.5%, the National Bank said Wednesday.
“In the decision process, several key factors were taken into account, including the steps taken so far to normalize the monetary policy, as well as latest movements in inflation and the foreign exchange market. The foreign exchange market has seen significant stabilization over the past period, and the National Bank intervened by buying foreign currency. At the same time, pressure from the energy crisis has decreased significantly, while the inflow of foreign currency on the foreign exchange market in this period is significantly higher than expected. In addition, certain positive movements are visible in the foreign exchange market in relation to the demand for foreign currency by domestic natural entities, which indicates a gradual stabilization of the expectations and trust of domestic entities,” said the National Bank.
Latest data on the domestic and global economy and latest developments on the international and domestic financial markets were reviewed at Tuesday's session of the Committee for Operational Monetary Policy. Participants in the session concluded that risks to the overall macroeconomic context remain pronounced, with the main risk still coming from the uncertainty caused from global geopolitical tensions and their impact on prices and economic activity in a global framework.
As regards inflation, latest data show an average inflation of 10.9 percent in the period January - July, with three quarters of this growth explained by rising food and energy prices.
“Hence, the dynamics of inflation is still mainly a reflection of factors on the supply side, i.e. the increase in the import prices of food and energy, including the domestic electricity price, which is affected by developments in the global energy market. However, given the long-term nature of these trends, such pressure quickly spills over to the prices of other products and services and further fuel inflationary expectations, which points to the need for prudent domestic policies. Yet, the monthly change in consumer prices shows a certain slowdown, and a large part of the monthly growth is also due to the adopted decision on changes in the regulated price of electricity. At the same time, the annual dynamics of core inflation remained stable,” according to the central bank.
Latest expectations on world markets, the National Bank adds, indicate a gradual easing of price pressure, i.e. expectations for food prices have been revised downwards, while oil prices are expected to stabilize at the end of the year, and then decrease.
“However, risks on the supply side, particularly with regard to future energy and food price movements, are still significantly pronounced due to the military developments in Ukraine, so the uncertainty related to the spillover effects on domestic inflation remains high,” reads the press release.
Foreign exchange reserves are maintained in a safe zone, and data on activity in the domestic economy in Q1 of 2.4 percent, as well as estimates for further growth according to the high-frequency data for the period April - June, are now in line with latest expectations. In this period, a further, but slightly more moderate annual growth is seen in industry, turnover in total trade and hospitality, while activity in construction in the period April - May records a slowing down of the decline. Latest data show further growth in loans and deposits.
