NBS: Inflation in Serbia to Drop to Around 8% by Year-End

The National Bank of Serbia (NBS) has announced that it expects the further lowering of inflation in Serbia, which should be at around 8% at the end of the year, which would be half of the value recorded in the first trimester.

– The data on y-o-y inflation in Serbia measuring 15.1% in April confirm that inflation peak is behind us and that the monetary policy measures undertaken so far have yielded results – stated the vice-governor of the NBS, Zeljko Jovic, at the presentation of the May Inflation Report, recently adopted by the NBS Executive Board.

He said that the measures were yielding results, as also indicated by the stabilized one-year ahead inflation expectations, as well as by medium-term inflation expectations of the financial sector that were kept within the bounds of the target.

– In the coming months, inflation should continue down, ending the year twice lower than what it measured in Q1. Inflation’s return within the bounds of 3±1.5% target is still expected in mid-2024 – Jovic said.

Talking about economic growth projections, he said that, despite a somewhat weaker result in Q1, the bank had not changed the projected GDP growth rate for 2023, of 2.0–3.0%.

As he clarified, the main reasons are foreign trade movements outperforming all expectations and the continued high inflow of FDI.

– The structure of projected growth is somewhat different and more favorable from the aspect of growth sustainability. We now expect a positive contribution of net exports and a positive contribution of private investment, which was not the case in our February projection – he said.

He added that, owing to the robust improvement in the foreign trade balance and a higher surplus in services trade, the overall balance of payments trends since the start of the year had turned out much more favorable than expected.

– The current account deficit, seasonally peaking in Q1, this time reached only 0.7% of GDP. The current account deficit contracted owing to the lower imports of energy, primarily gas, and also the sustained high growth rate of goods and services exports, thanks to the effects of past investment and the recovery of production in the energy sector.

Considering a much lower than expected current account deficit in Q1, as he pointed out, the NBS now projects its share in GDP this year at around 4.5% p.a., which is more favorable than their February expectations, whereby the central bank also deems there is a great probability that this share might turn out even lower.

– The preserved and strengthened stability of the domestic banking sector, confirmed by the high capital adequacy of 20.5% and an NPL ratio brought down to a new historical low of 3% at end-March, indicate that, in our case, there is no trade-off between price and financial stability – Jovic pointed out.

According to him, the measures taken by the NBS account for the fact that Serbian inflation is mainly driven by supply-side shocks from the international environment and are calibrated so that the cost of loan repayment does not affect the quality of bank assets and NPL growth, while still containing an excessive expansion of loan demand.

– We have demonstrated high resilience to the shocks of a multidimensional crisis we have been facing for more than three years, as frequently underlined by all relevant international institutions and rating agencies. This is confirmed by the movement of key macroeconomic indicators, the record-high FDI inflow of close to 7% of GDP annually, continuing into this year as well – Jovic said.

He estimated that the most important indicator of Serbia’s resilience was also high and production-diversified growth in goods and services exports, which despite reduced external demand had reached EUR 38 billion the previous year and would likely exceed EUR 42 billion in 2023.

– The resilience is also confirmed by the ensured public finance sustainability and the record level of FX reserves of EUR 21.6 billion in April – Jovic said.

Click for the PDF file.

Narodna banka Srbije Beograd

National Bank of Serbia

NBS

Željko Jović

lowering inflation in Serbia

inflation in Serbia

year on year inflation in Serbia

May 2023 Inflation Report

economic growth Serbia

projected GDP growth rate

balance of payment trends

current account deficit Serbia

capital adequacy

non performing loans

export of goods

export of services