Market participants recognize this successful defense of the exchange rate in the past fifteen years, although in a short run any change may cause, through the transmission effects, only temporary increase of the nominal, and thus of real interest rates in the economy. A logical consequence of all this is that a possible reflation in the Eurozone means that the Republic of Macedonia will not become an isolated island doomed to disinflation and, vice versa, that if the Euro continues to prove effective in delivering low inflation in the Eurozone, in the Republic of Macedonia internal depreciation will be the preferred course of adjustment. The differences between inflation rates in the Republic of Macedonia and the Eurozone will remain temporary and limited. In fact, this marks the success of the stable exchange rate as an intermediate target of the monetary policy which consists of the aforementioned difference of 0.2 percentage points between the inflation in the Republic of Macedonia and the inflation in the Eurozone. In the long run, this enables economic agents to have more definite expectations about the general price level and denotes support to the economic environment. In such monetary policy setting it should be noted that the National Bank, as a public institution, constantly needs to cooperate with the Government without undermining the autonomy of any of these two institutions.
The price of five-year futures contracts for West Texas Intermediate crude has almost doubled in the last three years. Following the sudden rise last spring, US capital market rates have since dropped back to the year-earlier level. The temporary increase in capital market rates in Europe was slightly less pronounced. As a result of the opposing movements of the US and European interest rates of the past few weeks, the long-term dollar interest rates now exceed the corresponding interest rates in the euro area by approximately 50 basis points. On the one hand, the general interest rate development in the capital markets reflects market participants’ misgivings concerning the strength of the economic upswing. On the other hand, the historically low nominal interest rates are testimony to the markets’ confidence in the ability and determination of central banks to further ensure price stability. Moreover, the interest rate structure in the US is characterised by the sizeable dollar investments from Asia. International equity markets trended sideways for much of the year, although some emerging market indices in particular were able to generate significant profits. 2. Managing the National Bank’s assets  The National Bank manages monetary reserves slightly in excess of CHF 60 billion, two-thirds of which are held in foreign currency investments and one-third in gold. In addition to this are approximately 25-30 billion Swiss franc assets in the form of balances from repo transactions in the  1/2  money market and bond investments in the domestic capital market.