The National Bank of the Republic of North Macedonia, kept its key rate unchanged at 1.25 percent on Wednesday (July 14), judging its monetary policy is appropriate for the current economic and financial conditions.
The previous policy rate cut, on March 10 by 0.25 pp, was accompanied by the reduced offering of Treasury bills. Both moves contributed to a rise in the liquidity in the banking system and supported the flow of credit to the economy, the central bank said in a statement.
The Balkan country’s economy contracted by 1.9 percent year-on-year in the first quarter of 2021, following a 0.7 percent drop in 4Q 2020. The economy was mostly weighed down by a sharp reduction in gross capital formation (-16.6 percent vs -13.0 percent in the previous three-month period) and a downturn in government spending (-2.2 percent vs 6.6 percent). More positively, household consumption showed signs of recovery (0.4 percent vs -4.3 percent), while exports jumped 8.6 percent (vs 1.3 percent) and imports rose a slower 2.0 percent (vs -7.2 percent).
The available data for the period April-May point out to strong annual growth of the economy in the second quarter, especially in terms of industrial production, trading sales and the hospitality sector, the central bank said.
In May, the bank was seeing the country’s economy to grow by 3.9% this year, keeping its October forecast unchanged.
Last year, GDP shrunk by 4.5 percent on the back of a double-digit fall in investments and exports and a 6 per cent decline in private consumption. These falls were somewhat counterbalanced by an increase in government consumption (10 per cent rise). Industrial output contracted by 10 per cent, and the trade, transport.
In terms of inflation, the central bank raised its end-2021 inflation forecast to 2.2% from previously expected 1.5%, reflecting the rising global prices of primary products, mainly crude oil and food.
Last month, the annual inflation rate decreased to 2.7 percent from a near 8-1/2-year high of 3.0 percent in May. On a monthly basis, consumer prices went up 0.5 percent in June, following a 0.7 percent gain in the month prior.
Meanwhile, North Macedonia sold MKD10bn (€162.3mn) of 28-day central bank (CB) bills at an auction on Wednesday with an interest rate of 1.25%, in line with its target. The interest rate on the CB bills equals the central bank’s monetary policy rate. The next auction of securities is scheduled for August 12.