Tabakovic: Serbian inflation projected to be at around 8 pct at end-year

BELGRADE - National Bank of Serbia (NBS) Governor Jorgovanka Tabakovic said on Wednesday the 8.5 pct y-o-y inflation in October was lower than the NBS predictions from August and that, according to the latest projections, inflation would decline to around 8 pct at the end of the year and return to within the target band in mid-2024 and continue to slow down.

At the presentation of the November 2023 Inflation Report, Tabakovic said GDP growth of around 2.5 pct was expected in 2023 and that the current account deficit in the first nine months of the year had been 1.6 pct and would be exceeded by FDI multiple times, with the fiscal deficit to be lower than planned, amounting to around 2.8 pct of GDP.

"First of all, the measure of capping interest rates on variable-rate housing loans is well-calibrated in all respects. The adoption of this measure and its effect on the banking sector financial result are estimated not to jeopardise in any way the operation of the banking sector, while contributing to the preservation of financial stability by preventing a rise in NPLs. Household disposable income is thereby also increased, but it should be borne in mind that it cannot jeopardise the downward trajectory of inflation as it makes up merely around 0.3 pct of total household consumption in a single year. It can only contribute to the recovery of consumption, which is indispensable for achieving the desired economic growth," Tabakovic said.

"Already in Q1, or no later than early Q2 next year, the NBS real key policy rate will return to positive territory, with y-o-y inflation and inflation expectations going down. In other words, even by keeping the key policy rate at the current level of 6.5 pct, the NBS will act increasingly restrictively, lending a strong impetus to the disinflation process," she said.

"Given the established downward trajectory of inflation and its expected movement going forward, it is estimated that central banks of advanced economies are probably nearing the end of the monetary policy tightening cycle. However, due to persistent risks, tight monetary conditions will be maintained for some time," Tabakovic also said.