North Macedonia’s central bank said on December 18 that it decided to cut the interest rate on treasury bills by 0.25 percentage points (pp), bringing it down to 5.55% (chart).

The interest rates for overnight and 7-day deposits dropped to 3.95% and 4%, respectively. The offer of treasury bills at the latest auction was kept steady at MKD10bn (€162.6mn).

The central bank’s decision was based on an inflation rate that aligns with expectations and favourable developments in the foreign exchange market. In November, the annual inflation rate accelerated to 4.3%, up from 3.5% in October, primarily due to rising food prices.

This increase is largely attributed to a lower comparison base from the same period last year, when temporary measures were introduced to limit price growth. Meanwhile, core inflation continues to decelerate, and energy prices have declined further.

The central bank expects the annual inflation rate to remain near November’s level through the end of 2024. Inflation for 2024 is projected to average 3.5%, consistent with the October forecast cycle. Consumer surveys conducted by the European Commission indicate a prevailing expectation of price decreases in the near term.

The foreign exchange market remains stable, with foreign exchange reserves at €4.92bn at the end of November. This level is deemed adequate to sustain the stability of the domestic currency. Since the beginning of 2024, the central bank has made net purchases of foreign exchange, contributing to a better-than-expected performance in reserves.

Trade deficit figures for October 2024 are currently lower than projections for the fourth quarter, while private transfer inflows and the current account surplus in the third quarter align with expectations. These trends underscore the continued stability of the external sector.

The European Central Bank’s recent decision to reduce interest rates by 0.25 percentage points—its fourth cut this year—was another factor considered by North Macedonia’s central bank.

Domestically, economic growth in the third quarter of 2024 accelerated to 3%, close to the central bank’s projections. Growth for the first three quarters averaged 2.6%, slightly exceeding expectations due to upward revisions in earlier data.

Risks to future growth persist, particularly from the external environment and the implementation pace of domestic infrastructure projects. Nevertheless, deposits and loans continue to exhibit robust growth rates, performing better than anticipated for the final quarter of 2024.

Meanwhile, the finance ministry sold out MKD10bn of 49-day central bank bills on December 18, with an interest rate of 5.55%, the central bank said.