Macedonia's central bank held its benchmark interest rate steady at 3.25 percent, saying the past monetary policy measures were sufficient to support the domestic economy which continues to recover steadily.
The National Bank of the Republic of Macedonia (NBRM), which cut its rate by 25 basis points in 2013, said an exit from the "zone of accommodative monetary policy" would depend on changes in the external position of the economy and the effect on foreign reserves.
The European Central Bank's (ECB) interest rate reduction "mitigates part of the potential risks for the external position of the domestic economy," the central bank said, adding this rate change has increased the spread between Macedonia's domestic currency and the euro, "thus raising the attractiveness of the domestic currency."
A meeting on June 10 by the bank's Operational Monetary Policy Committee found continuing favorable trends in economic activity in the first quarter and economic recovery is estimated to proceed as expected, with growth still not strong enough to cause major imbalances in the economy, such as inflationary pressures or a significant deterioration in the external position.
Macedonia's inflation rate continued to decline in May to a negative 0.6 percent from zero in April and the central bank said inflationary pressures were lower than expected due to downward corrections in the expectation for some import prices. However, there is an upward risk for food and energy prices from the conflict in Ukraine and from flooding that may lead to higher food prices.
On balance, however, the NBRM still views downward inflation risks as dominant.
Foreign reserves have declined moderately since April, the bank said, but they remain in the safe zone and are sufficient to cope with any possible unforeseen shocks.
The Macedonian denar currency has strengthened this week, quoted at 61.38 to the euro today, up from 61.7 at the end of last week. But compared with the start of the year, it is largely stable.
The republic of Macedonia is located south of Serbia and north of Greece.