North Macedonia cuts rate 3rd time and adds liquidity

      North Macedonia's central bank lowered its policy rate for the third time this year to support the economy by lowering the cost of financing and trimmed the amount of Treasury bills that will be auctioned to provide additional liquidity in the banking system that can be used to increase lending activity and mitigate the effects of the negative shock from the coronavirus.
     The National Bank of the Republic of North Macedonia cut its policy rate by another 25 basis points to 1.50 percent and has now cut it by 75 points this year following cuts in January and then at an emergency meeting on March 16.
     The bank's operational monetary policy committee trimmed the amount of treasury bills, which together with the reduced offer in April, will release a total of 15 billion denars, and expanded the scope of instruments through which it can provide liquidity to the banking system.
      The central bank will now accept domestic government bonds with the longest maturities (15 and 30 years) as well as Eurobonds when purchasing securities as part of monetary operations.
      Although external and domestic risks to the economy continue, the central bank said moderate inflation and a stabilization of expectations and recent confidence, evidenced by the foreign exchange market, and deposits in the banking system, provided room for further monetary easing.
      Recent data for the first quarter of this year show continued but slower economic growth and average inflation in the first four months of the year was 0.4 percent, with inflation expectations around zero percent for this year.
      Foreign exchange reserves remain in what the central bank said was "a safe zone," with net inflows from private transfers in the second half of April slightly lower than expected.
     The central bank's intermediary policy objective since 1995 has been to target the denar's exchange rate due to its significance in a small, open economy, the need for a nominal anchor to maintain credibility, the high level of use of the euro and the transparency of the exchange rate policy.
     The Macedonian denar rose in response to the rate cut to trade at 61.5 to the euro, but is unchanged on the year.

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