Macedonian c-bank raises key rate to 4% amid unstable political situation

By bne IntelliNews May 4, 2016

Macedonia's central bank said on May 4 it has raised the key interest rate to 4% from 3.25% due to pressures on the deposit base and higher demand for foreign currency as a result of the unstable political situation in the country.

Macedonia is facing political stalemate with no sign of a quick solution following the start of anti-government protests in mid-April after president Gjorge Ivanov made the shock decision to pardon politicians under criminal investigation. It is not clear whether early general elections scheduled for June 5 will take place, as conditions for free and democratic vote have allegedly not been met.

The decision of the central bank to tighten its monetary policy is a reaction to the increased demand for foreign currency and pressures on banks' deposit base, as a consequence of the worsening expectations caused by the unstable political situation in the country, the central bank said in a statement.

On the other hand, the central bank said it continues to assess Macedonia’s economic fundamentals as healthy, without major imbalances in the economy.

All recent indicators point out to solid economic and lending growth without pressures on prices or the external sector, the central bank said.

The benchmark interest rate, which determines its monetary policy, has been kept at 3.25% since July 2013 when the monetary authority switched to ‘volume tender’ to place the Central Bank (CB) bills and announced a fixed interest rate for the bills and dealers bid only with amounts.

On May 3, the European Commission upgraded its 2016 projection for Macedonia’s GDP growth to 3.5% from the previous forecast of 3.3% saying that domestic demand is expected to boost growth.

The current account deficit remains moderate, with positive spillover effects from structural changes in the export sector and the lack of financial flows for its financing. In addition, foreign exchange reserves are consistently at an adequate level, according to the central bank.

Macedonia has a fixed exchange rate regime, with the central bank pegging the domestic currency, the denar, to the euro.

Related Articles

S&P warns return of political tensions in Macedonia could lower rating

Standard & Poor’s (S&P) Global Ratings affirmed on March 16 its 'BB-/B' long- and short-term foreign and local currency sovereign credit ratings on Macedonia, keeping the outlook ... more

Macedonia looks to dispose of radioactive medical waste “time bomb” stored in downtown Skopje

Hazardous radioactive waste has been kept in the Oncology Clinic in downtown Skopje for decades, and poses a “time bomb” in terms of safety, local media reported, citing officials from the ... more

Macedonian government mulls cancelling concession deal for Kazandol mining project

The Macedonian government has said it is mulling plans to cancel the concession agreement for the construction of the Kazandol mining complex in southern Macedonia after enviromental ... more