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National Bank of Serbia : Inflation Report – August 2019

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08/14/2019 | 05:27am EDT

NATIONAL BANK OF SERBIA

I N F L A T I O N R E P O R T

August 2019

Belgrade, August 2019

Inflation Report - August 2019

National Bank of Serbia

ii

Inflation Report - August 2019

National Bank of Serbia

Introductory note

The Agreement on Inflation Targeting between the Government of the Republic of Serbia and the National Bank of Serbia, effective as of 1 January 2009, marks a formal switch of the National Bank of Serbia to inflation targeting as a monetary policy regime. The main principles and operation of the new regime are defined by the Memorandum on Inflation Targeting as a Monetary Strategy.

Since one of the underlying principles of inflation targeting is strengthening the transparency of monetary policy and improving the efficiency of communication with the public, the National Bank of Serbia prepares and publishes quarterly Inflation Reports as its main communication tool. The Inflation Report provides key economic facts and figures that shape the Executive Board's decisions and underpin activities of the National Bank of Serbia.

The Inflation Report aims to cover information on the current and expected inflation movements and to provide an analysis of underlying macroeconomic developments. It also seeks to explain the reasoning behind the Executive Board's decisions and to provide an assessment of monetary policy effectiveness during the previous quarter. Also integral to this Report are the inflation projection for eight quarters ahead, assumptions on which the projection is based and an analysis of key risks to achieving the target.

The information contained in this Report will help raise public understanding of monetary policy implemented by the central bank and awareness of its commitment to achieving the inflation target. It will also play a role in containing inflation expectations, as well as in achieving and maintaining price stability, which is the main statutory task of the National Bank of Serbia.

The August Inflation Report was considered and adopted by the NBS Executive Board at its meeting of 8 August 2019.

Earlier issues of the Inflation Report are available on the National Bank of Serbia's website (http://www.nbs.rs).

Executive Board of the National Bank of Serbia:

Jorgovanka Tabaković, Governor

Željko Jovi ć, Vice Governor

Ana Ivković, Vice Governor

Dragana Stanić, Vice Governor

iii

Inflation Report - August 2019

National Bank of Serbia

ABBREVIATIONS

bp - basis point

CPI - Consumer Price Index

EBRD - European Bank for Reconstruction and Development

ECB - European Central Bank EIB - European Investment Bank EMBI - Emerging Markets Bond Index EU - European Union

FAO - UN Food and Agriculture Organization FDI - foreign direct investment

Fed - Federal Reserve System

FOMC - Federal Open Market Committee GDP - gross domestic product

GVA - gross value added

  1. - half-year

IFEM - Interbank Foreign Exchange Market IMF - International Monetary Fund

LHS - left hand scale mn - million

NAVA - non-agricultural value added NPL - non-performing loan

OFO - other financial organisation

ОPEC - Organization of the Petroleum Exporting Countries

  1. - percentage point Q - quarter
    q-o-q - quarter-on-quarterRHS - right hand scale
    RMCP - real marginal cost of processed food production s-a - seasonally-adjusted
    SDR - Special Drawing Right
    SORS - Statistical Office of the Republic of Serbia

y-o-y - year-on-year

Other generally accepted abbreviations are not cited.

iv

Inflation Report - August 2019

National Bank of Serbia

Contents

I

Overview .......................................................................................................................................................

6

II

Monetary policy since the May Report......................................................................................................

11

III

Inflation movements ...................................................................................................................................

13

Inflation movements in Q2 ............................................................................................................................

13

Producer and external prices ........................................................................................................................

14

Inflation expectations ....................................................................................................................................

15

IV

Inflation determinants.................................................................................................................................

17

1.

Financial market trends.................................................................................................................................

17

Interest rates .................................................................................................................................................

17

Risk premium ................................................................................................................................................

19

Foreign capital inflow ....................................................................................................................................

20

Text box 1: Serbia's prospects through the prism of foreign capital inflow .............................................................

21

Trends in the FX market and exchange rate .................................................................................................

24

2.

Money and loans...........................................................................................................................................

25

Monetary aggregates ....................................................................................................................................

25

Loans ............................................................................................................................................................

26

3.

Real estate market ........................................................................................................................................

29

4.

Aggregate demand .......................................................................................................................................

29

Domestic demand .........................................................................................................................................

29

Net external demand.....................................................................................................................................

31

Text box 2: Serbia's position in the global services market ....................................................................................

33

5.

Еconomic activity ..........................................................................................................................................

36

Text box 3: Total factor productivity and its contribution to Serbia's GDP growth...................................................

38

6.

Labour market developments........................................................................................................................

39

Wages and labour productivity......................................................................................................................

39

Employment ..................................................................................................................................................

39

7.

International environment.............................................................................................................................

41

Economic activity ..........................................................................................................................................

41

Text box 4: Changes to the global growth outlook..................................................................................................

45

Inflation movements ......................................................................................................................................

48

Monetary policy.............................................................................................................................................

48

Financial and commodity markets.................................................................................................................

50

V

Inflation projection.........................................................................................................................................

53

Inflation projection assumptions....................................................................................................................

53

External assumptions...................................................................................................................................

53

Internal assumptions ....................................................................................................................................

57

Projection ......................................................................................................................................................

59

Inflation projection........................................................................................................................................

59

GDP projection.............................................................................................................................................

63

Comparison and outcome of inflation projections .........................................................................................

66

Table A Indicators of Serbia's external position......................................................................................................

68

Table B Key Macroeconomic Indicators .................................................................................................................

69

Index of charts and tables ......................................................................................................................................

70

Executive Board meetings and changes in the key policy rate ...............................................................................

73

Press releases from NBS Executive Board meetings.............................................................................................

74

v

This is an excerpt of the original content. To continue reading it, access the original document here.

Disclaimer

National Bank of Serbia published this content on 14 August 2019 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 14 August 2019 09:26:08 UTC

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