Ljubljana stock indices rise, NLB leads gainers
Koncar boosts Croatian share indices
Most Romanian stock indices rise further, Digi shines
Bosnia's Serb Republic trade gap widens in Jan
Bosnia's Serb Republic building permits up 40% y/y in Jan
Nov 30, 2009 15:24 EEST
BELGRADE (Serbia), November 30 (SeeNews) – Serbia's central bank is likely to lower its key repo rate more slowly next year as the economic crisis subsides and lending activity is expected to pick up, the bank's vice governor Bojan Markovic said.
“We are more likely to cut it than keep it flat. But should this happen it is very probable that the cuts are going to be made with slightly more caution than it was done in the past because some of the factors will cease to have anti-inflationary effects,” Markovic told SeeNews in an interview.
The repo rate has come down from 17.75% over the course of 2009 so far. The central bank, NBS, made the latest cut, to 10% from 11%, earlier this month in response to decreased aggregate demand, lower inflation expectations, and decreased risk resulting from the successful completion of the International Monetary Fund’s third review of the country’s economic performance under Belgrade's 3.0 billion euro ($4.5 billion) stand-by arrangement with the global lender.
"If these trends persist in the future, we will continue to lower the repo rate.”
“However, what we expect is that some of these factors will start a reverse trend, mainly aggregate demand and lending activity, as we exit the crisis. But the other two factors - inflation expectations and the country risk premium - are likely to continue falling,” Markovic said, adding that Serbia is on the path of disinflation.
The country's October consumer price index (CPI) declined 0.2% month-on month after edging up 0.3% in September. On an annual basis, inflation slowed to 5.2% last month from 7.3% in September.
NBS expects CPI to fall to 7.5% this year from 8.6% in 2008 and has forecast 6.0% inflation next year with a variation band of two percentage points on either side provided government-controlled prices will rise by around 11%.
“It is difficult for me to see how it could happen that we would raise the repo rate in 2010 unless our inflation expectations for next year sharply change upwards,” Markovic added.
Serbia's economy is expected to recover and grow by 1.5% in 2010 after shrinking by a projected 2.8% this year, according to the latest NBS forecast. The IMF has revised its forecast for the contraction of Serbia's economy in the current year to 3.0% from 4.0% projected earlier.
NBS believes that, in a few years, Serbia’s CPI will get closer to the inflation rates typical for European Union member states, Markovic said.
Serbia has made substantial progress towards EU accession with the signing of a Stabilisation and Association Agreement (SAA) in April 2008 and with the arrest of Bosnian Serb wartime leader Radovan Karadzic in August the same year. Karadzic is currently standing trial at the international tribunal in The Hague on charges of genocide and crimes against non-Serb civilians in Bosnia committed during the 1992-95 war there.
“With the slowdown of inflation and the rise of the central bank's credibility, we expect inflation expectations to subside. This means that there will be room to lower our nominal repo rate without lowering the real repo rate,” he said.
Earlier this month, NBS cut to 20% from 25% the portion of mandatory reserve requirements on euro liabilities that commercial banks have to maintain in Serbian dinars, aiming to bring that portion back to its pre-crisis level.
Markovic also suggested that next year NBS may simplify its system for calculating mandatory reserve requirements for specific foreign exchange positions.
You have run out of free articles this month.
Sign up in for
and get ten (10) free articles per month or sign up for
and get unlimited access.
Browse our free newsletter options