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NBS Forecasts Economic Growth of Three to Four Percent This Year

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The January inflation rate will be 6.4 percent, this data is not official yet, but it is indicated by the models of the National Bank of Serbia (NBS). The same models predict that the February retail price growth will be 5.5 percent. Governor Jorgovanka Tabaković announced these data on the decline in prices yesterday during the presentation of the regular February inflation report.

According to the governor, inflation will continue to slow down, and central bank officials expect it to return to the target range of three plus-minus 1.5 percent by the middle of this year. By the end of the year, they anticipate it approaching the central value of the target at three percent. The average inflation for the entire year is projected to be 4.5 percent. These movements have been primarily influenced by tightening monetary policy and a weakening of global cost pressures.

“This year, we expect an acceleration in the growth of gross domestic product (GDP) ranging from three to four percent, and four to five percent for the following two years. The most significant factors contributing to this growth will be personal consumption, as well as both government and private investments,” stated Tabaković.

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She mentioned that the projected movement of inflation and the transmission of the effects of the previous tightening of monetary policy on interest rates in the money market, loans, savings, and inflation expectations influenced the decision of the NBS to keep the reference interest rate unchanged at 6.5 percent during the period covered by the previous report. “From this temporal distance, and considering the movement of key macroeconomic indicators, it can be said with certainty that through monetary policy, which we continuously, gradually, and judiciously tightened, we simultaneously ensured a reduction in inflationary pressures and a return of inflation to the target range within the horizon of monetary policy,” emphasized Tabaković.

According to her statements, the NBS is a net buyer of foreign exchange on the foreign exchange market. In 2023 alone, the bank purchased four billion euros, and since 2019, it has bought more than nine billion euros. She emphasized that global inflation is declining faster than expected and is approaching pre-pandemic levels, influenced by the effects of the previous tightening of monetary conditions by most central banks.

“As a result of lower inflation, the beginning of a reduction in the benchmark interest rates of leading central banks can be expected, and some banks in the region in the inflation targeting regime have already initiated this cycle. However, the International Monetary Fund and other relevant international institutions warn that central banks should exercise caution in deciding to start lowering their interest rates to avoid a resurgence of inflationary pressures,” said the governor.

According to her, when formulating the assumptions for our projections, the forecasts of relevant international institutions were taken into account. These institutions anticipate that the global price of oil will range between 80 to 83 dollars per barrel.

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