By: Milen Vesovic
Belgrade, Nov.23, 2009 (Serbia Today) - Inflation in Serbia ran at 7.5% percent this year, it was announced at the presentation of the November Inflation Report by the National Bank of Serbia (NBS).
It is expected that in the fourth quarter of this year inflation will run at approximately 1.2%, primarily due to expected increases in agricultural product output of 9.4%, said Vice Governor of the NBS Bojan Markovic.
According to Markovic, the greatest risk to maintaining the current rate of inflation is the unstable prices of petroleum products and the increases in the tax of cigarettes, scheduled to start next year. Markovic said that key deflationary factor in the near term is low domestic demand, since the investment activity of the state and the economy is low, and the freezing of public sector wages and pensions.
The Republic of Serbian Dinar (RSD) exchange rates are stable despite the decrease in the prime interest rate and increased liquidity in RSD. These factors have contributed to successful negotiations with the IMF, and helped record a mild recovery of economic activity, said Markovic.
Regarding future changes in the interest rate due to the current slowing of inflation, Markovic had this to say, ”Taking into account all factors, the future is likely to reduce the prime interest rate, but, presently, it needs to remain at the current level of 10%.”
Risks that could stop the mitigation of monetary policy could be a faster recovery in domestic demand than expected, or a higher price increase than expected in world oil prices, added Markovic.
Markovic remarked at the meeting that the 3rd quarter, showed an increase in domestic production of 4.1%. The causes behind this increase in production are thought to be the growth of industrial production, according to Markovic.
"GNP is expected to increase about 1% in the fourth quarter, due to activity in the transport sector and manufacturing industry. The fall of GDP this year is now estimated at about 2.8 percent, which is lower than previous projections,” said Markovic.
Markovic reflected that continued reduction in the balance of payments, primarily due to falling trade deficit, was having a big impact on inflation. He noted that investments banks are still primarily focused on securities and investments and the economy recorded a modest increase in investment in those areas. Savings has also increased to EUR 926 million currently, and is expected to return to its pre-economic crisis levels at the end of the year.