North Macedonia’s central bank has hiked its key rate for the fourth month in a row due to rising inflation, this time by 0.5 of a percentage point (pp) to 2.5% (chart), it said on July 13.

Prior to the start of the series of rate increases, the key rate, also the rate applied to central bank bills, remained unchanged at 1.25% since March 10, 2021.

“The National Bank continues with the gradual normalisation of monetary policy to maintain medium-term price stability, through a further increase of the key interest rate,” the regulator said in a statement.

The decision on raising the key rate was based mostly on the latest inflation movements. Average annual inflation in North Macedonia was 10% in the first six months of the year. It was mainly driven by import prices of food and energy, which are growing at a much stronger pace than expected.

“These pressures quickly spill over to the prices of other products and services and further fuel inflationary expectations,” the central bank said.

The latest data from world markets indicate a gradual easing of price pressures, which are expected to stabilise in the second half of 2022.

However, the uncertainty of future energy and food price movements has been accentuated by war developments in Ukraine.

According to the central bank, the level of North Macedonia’s foreign exchange reserves meets the requirements for adequacy and is moving in the safe zone.

Meanwhile, North Macedonia sold over MKD6.8bn (€110mn) of 28-day central bank bills on July 13 with an increased interest rate of 2.5%, missing the target offer of MKD10bn.

The next auction of CB bills is due to be held in mid-August.