The central bank of North Macedonia left its policy rate steady, saying the three rate cuts earlier this year along with the reduction in the amount of central bank bonds offered had contributed to an increase in the banking system’s liquidity and helped support the flow of credit in the country.
The National Bank of the Republic of North Macedonia maintained its policy rate at 1.50 percent after cutting it three times this year by a total of 75 basis points following cuts in January, March and May.
“Based on the already completed easing of monetary policy, in this meeting it was decided that the interest rate on central bank bonds remains at the current level, according to current economic and financial conditions,” the bank’s monetary operations policy committee said in a statement issued on July 16 following a July 14 meeting.
Since 1995 the central bank’s intermediary policy objective is to maintain the exchange rate of the denar to maintain price stability, with the policy rate equalling the rate on central bank bills.
The national bank said liquidity of 15 billion dinars issued in April and May was appropriate so this week’s auction of central bank bonds would be unchanged from June’s auction at 10 billion denars.
High-frequency economic data for North Macedonia, which changed its name from Macedonia in 2019, continued to show negative effects of the Covid-19 crises in April and May after growth slowed to 0.2 percent year-on-year in the first quarter of this year, down from 3.4 percent in the previous quarter, the central bank said.
Inflation rose to 1.7 percent in June after consumer prices fell in the previous two months and the central bank said its forecast of zero percent inflation this year remains surrounded by uncertainty due to the different directions of import prices and the volatility of prices of primary products.
The country’s foreign exchange reserves remain at a safe level and slightly better than expected in the second quarter and there has been a steady rise in the liquidity of foreign exchange at banks, helped by the National Bank’s sales.
Since the start of July through July 13, the net demand for foreign currency has only been 3 million euros, the bank added.
Last month the bank’s governor, Angelovska Bezhoska, assured the country there would be no devaluation of the denar as the bank had a high level of reserves – at more than 3 billion euros at the start of the coronavirus crises – and other instruments to protect the exchange rate.
“If we managed to keep the denar stability in 2008 and 2009 with a significantly lower level of foreign reserves, now with this level of foreign reserves, there should be absolutely no dilemma that the denar stability will be guaranteed,” she said in a statement available on the bank’s website.
The denar was trading at 61.6 to the euro today, unchanged this year.
