NATIONAL BANK OF SERBIA
Opening remarks at the presentation of the
Inflation Report - August 2019
Dr Željko Jović, Vice Governor
Belgrade, 14 August 2019
Ladies and gentlemen, esteemed members of the press, dear colleagues,
Welcome to the presentation of the August Inflation Report, where colleagues from the Economic
Research and Statistics Department will present to you in detail the current macroeconomic trends and
our latest projections.
In my introductory address I will touch on the key macroeconomic conditions in which monetary policy
was implemented and on the decisions the National Bank of Serbia has made in the period since our
previous Report. First of all, I would like to say that favourable macroeconomic trends continued into
2019 - inflation is low and stable, macroeconomic and financial stability has been preserved, and the
costs of financing have stayed low, feeding through into higher economic and investment activity. Over
the past six years inflation has been low and stable, at around 2%, and is expected to remain so in 2019
and 2020. Financial stability has been maintained and the issue of inherited non-performing loans
resolved in a sustainable way - their level has been reduced by more than 70% over the last four years
and their share in total loans cut to 5.2%. Relative to May 2013 when we embarked on the cycle of
monetary easing, the interest rates on dinar loans for households are now twice lower and for
corporates as many as three times lower. This served as a fillip to investments, which remain one of the
key drivers of economic growth this year as well. The sustained positive fiscal trends, with a surplus of
0.7% of GDP in the first half of the year, are a reflection of the successfully implemented fiscal
consolidation and full coordination of monetary and fiscal policies.
All of this has been achieved in the face of unfavourable effects of some factors from the international
environment, notably the slowing of global economic growth amid announcements of additional
protectionist measures and heightened geopolitical tensions. At the same time, this is a proof that by
strengthening our economy, primarily through the reduction of external and internal imbalances and
through favourable macroeconomic prospects, we have increased its resilience to unfavourable effects
from the international environment.
Since the May Report, external financial conditions have been largely affected by the shift in the
monetary policies of leading central banks, which are not only slowing the normalisation process, but
also announcing additional monetary stimuli. Thus, the Federal Reserve System lowered its policy rate
for the first time since 2008, while the European Central Bank announced it would keep its main rates at
current or lower levels at least through mid-2020. This should sustain favourable financial conditions for
longer than expected, as well as capital inflows to emerging markets.
As monetary easing by leading central banks appeared more certain and positive macroeconomic
developments at home continued, the National Bank of Serbia decided to lower the key policy rate in
two instances, July and August, by 25 bp each, to 2.5%, i.e. its lowest level in the inflation targeting
regime yet. Thus, in conditions of subdued inflationary pressures, the National Bank of Serbia continued
to provide additional support to economic growth and a sustainable rise in employment.
As so far, monetary policy decisions will continue to be made in consideration of the effects of past
monetary easing on the future inflation profile, as well as of the effects of other domestic and external
factors. Given that the key risks to the projection are still mostly associated with the international
environment, the National Bank of Serbia will keep a close eye on developments in the international
commodity and financial markets and assess their impact on economic movements in Serbia. As before,
monetary policy will be predictable and consistent in delivering low and stable inflation in the medium
term. This will at the same time help maintain macroeconomic and financial stability and contribute to
sustainable economic growth. Owing to this, there is a constant rise in the number of domestic and
foreign investors who are investing at a longer horizon, having recognised the stability and prospects of
our economy.
Current economic trends and the results achieved thus far are a good basis for further sustainable and
dynamic economic growth. This is confirmed by our latest projections and key macroeconomic
developments, which will now be presented to you in detail by our colleagues from the Economic
Research and Statistics Department.