North Macedonia's central bank, the NBRM, decided to raise its policy rate by 0.25 percentage points (pp), to 6% (chart), the bank announced on June 21.

The tightening of monetary policy, which commenced at the end of 2021 through active liquidity management in the foreign exchange market, and later in April of the following year with increased interest rates on treasury bills and other monetary instruments, persists with the latest adjustment.

The central bank also decided to increase the interest rate on overnight deposits by 0.25 pp to 3.9% and the rate on seven-day deposits also by 0.25 pp to 3.95%.

The risks associated with inflation remain. Consequently, it is crucial to exercise further caution in policy implementation to achieve a more sustainable stabilisation of inflation and inflation expectations, the central bank said.

May's annual average inflation rate showed a continued slowdown to 11.3%. The core inflation also eased, falling to single digits in line with expectations. However, inflation remains elevated, surpassing historical averages.

Core inflation remains high, indicating that the impact of energy and food price increases has not fully subsided. Although there is a downward trend in future price expectations for primary products on stock exchanges, uncertainty persists.

In Q1 2023, real GDP increased by 2.1% annually, surpassing the previous quarter's growth of 0.6%. However, the currently available high-frequency data for the second quarter is insufficient to provide a comprehensive understanding of the overall situation.

According to the central bank, preliminary data for April indicates moderate negative trends in industrial production, along with a real annual decline in turnover in total trade following previous quarter's growth.

Meanwhile, the finance ministry sold over MKD8.3bn (€135mn) of 43-day central bank bills on June 21 with an increased interest rate of 6%, missing the target offer of MKD10bn.

The next auction will be held on August 3.