The latest conditions in the economy make it possible to begin a gradual cautious normalization of the monetary policy setting and it has been decided to reduce the interest rate on treasury bills by 0,25 percentage points, to the level of 6,05 percent, the National Bank announced today.

Interest rates on overnight and 7-day deposits are unchanged, at the levels of 4,20 percent and 4,25 percent, respectively. The offer of treasury bills at the regular auction is also unchanged and amounts to 10 billion denars.

The Executive Board for the setting of the monetary policy of the National Bank reviewed the latest data and information on the global and domestic economy and the latest developments on the international and domestic financial markets in the context of the setting of the monetary policy.

With such changes, according to the NB, prudence in monetary policy is maintained, taking into account the risks associated with the external environment that still exist, but also with domestic factors that affect aggregate demand. It is still expected that the level of interest rates, together with the previous changes in the reserve requirement and the macroprudential measures taken, including the gradual increase in the rate of the countercyclical protective layer of capital for bank exposures (1 percent with application from July 2024), will contribute to price stability in the medium term and to maintaining the stability of the exchange rate. At the same time, the changes in the mandatory reserve instrument, which are applied from July 2024, contribute to additional support for the setting of the monetary policy.

The National Bank informs that the decision on the monetary policy is based on the evaluations of the inflation, which moves within the expectations, as well as on the constant favorable movements of the foreign exchange market. The annual inflation rate slowed down significantly in August and amounted to 2,2 percent, with favorable movements in all three main components, i.e. falling prices in the food and energy components and slow growth of basic inflation.

– Considering the comparison base from 2023 (measures to temporarily limit price growth), a certain variability in the inflation rate is possible until the end of the year, but on average for the whole year 2024 it is expected to be within the projected from 3,5 percent, according to the April projection cycle. In EC surveys on consumer expectations, for five months in a row, expectations for price reductions in the next period have prevailed. Regarding stock market prices of primary products, the latest forecasts have been revised downwards, in line with increased supply and reduced demand, which is associated with weaker growth prospects, the statement said.

The announcement states that the situation on the foreign exchange market is stable and the movements are favorable. The level of foreign exchange reserves at the end of August is 4.469,8 million euros, which is adequate for maintaining the stability of the exchange rate of the domestic currency. In accordance with the favorable movements of the foreign exchange market, the National Bank intervened from the beginning of the year with a net purchase of foreign exchange, which contributed to better achievements in foreign exchange reserves than expected. According to the latest available data from the external sector, the trade deficit in July 2024 is in line with the expectations from the April projection cycle. Exchange market realizations as of the end of August are slightly higher than projected net inflows from private transfers. The realized deficit in the current account of the balance of payments in the second quarter of 2024 is lower than the expectations according to the April projection, with simultaneously higher realized net financial inflows.

Regarding the policy of the European Central Bank (ECB), as a factor that the National Bank also takes into account, at the last session in September, for the second time this year, a decision was made to reduce the interest rate by 0,25 pp.

- Economic growth in the second quarter of 2024 accelerated and is almost identical to the projections of the National Bank. The real growth of the domestic economy is 2,3 percent on an annual basis (1,2 percent in the previous quarter), with further growth on a quarterly basis. Thus, in the first half of the year, a growth of 1,8 percent was achieved, which is close to our projection of 1,9 percent. High-frequency data for the third quarter of 2024 currently available is limited. For now, the data for July show a real annual growth of turnover in total trade and industrial production, against their decline in the previous quarter. Regarding the risks for growth in the next period, they still exist and are primarily related to the developments in the external environment, but also to the intensity of the implementation of domestic infrastructure projects, the central bank emphasized.

In the monetary sector, the deposit potential of the banks is solid and for now with prospects for better than expected achievements for the third quarter. The achievements are similar in credit growth, which is maintained slightly above the projected.

- In general, the latest developments in the key macroeconomic indicators, as well as the perceptions regarding their future path, created an opportunity to reduce the basic interest rate. However, the National Bank maintains a cautious approach in further decisions on monetary policy. The risks related to the external environment should continue to be monitored, above all the prices of primary products, which are still influenced by the unstable geopolitical context and climate changes, and attention should also be paid to the risks from domestic factors that may affect demand. and prices in the next period, including wage policy. From there, conducting prudent macroeconomic policies will be our priority in the future as well. The National Bank is still ready to use all the necessary instruments and take appropriate measures that will contribute to maintaining the stability of the exchange rate and price stability in the medium term, the National Bank announced.