Serbian inflation will return to target “in the coming months” and monetary policy will focus on keeping it there, the central bank said.
Higher excise taxes and January increases in value-added tax on some goods and services will help stoke price growth, the Narodna Banka Srbije said today in its year-end report. The rate, which was 12.2 percent at the end of last year, fell to a record-low 1.6 percent in November, less than the central bank’s target band of 2.5 percent to 5.5 percent.
Policy makers will “continue to keep inflation low and anchor inflationary expectations at the target level,” according to the bank, which is based in Belgrade, the capital. The government’s fiscal strategy is important for “maintaining positive tendencies in foreign trade and economic activity.”
The central bank trimmed borrowing costs for a third straight month on Dec. 17 as inflation slowed. It predicts the economy will expand 1.5 percent next year after growing 2 percent in 2013.
Serbia adopted its 2014 budget last week, seeking to scale back spending and prepare for talks with the International Monetary Fund on a precautionary program.
While fiscal consolidation will negatively affect consumption and growth in the short-term, it will create space for investments and faster economic expansion in the coming years, the central bank said. Exports and about 1 billion euros ($1.4 billion) of foreign direct investments will drive growth in 2014, said Branko Hinic, the central bank’s chief economist.
Non-performing loans accounted for 20.6 percent of total credit at the end of October, compared with 21.1 percent the previous month, while loan-loss reserves were “satisfactory” at 115.4 percent, according to the report.
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