Post on 30-Dec-2015
Macroeconomic DevelopmentsMacroeconomic Developments, , OctoberOctober – – DecemberDecember 2006 2006
Radovan Jelašić – Governor
Belgrade, 29 January 2007
ContentsContents
Inflation
Monetary policy
Capital inflow and external position
Monetary aggregates
Current account balance
Economic growth
Lending activity of banks
Wages and productivity
Fiscal developments
All that was achieved in 2006 will be sustained in 2007All that was achieved in 2006 will be sustained in 2007!!
13.7
7.8
14.817.7
6.64.4
6.111.0
5.9
14.5
0
5
10
15
20
2002 2003 2004 2005 2006Retail prices Core inflation
0.0
-0.1
0.7
-0.2 -0.4
0.90.5 0.4
0.8 0.60.1 ?
1.6
0.10.8
1.81.4
2.2
0.4 0.3 ?0.00.20.7 0.40.60.8 0.6
-1.0
0.0
1.0
2.0
3.0
Dec-05
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec-06
Jan-07
-10-505101520
Retail prices Core inflation Year-on-year growth rates Year-on-year core inflation
Monthly inflation dynamics in 2006 (%) Annual inflation rates (%)
14.00
19.97 19.97
20.89 20.9420.77
20.22 20.13
18.4118.00 18.00
17.5016.50
10
12
14
16
18
20
22
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan
Q1 Q2 Q3 Q4 2007
* Preliminary data until 29 January 2007.
Switch to 2W repo securities via fixed-rate auctions
NBS key policy rate in 2006 (%)
2.2
3.4
0.4 0.5
1.72.1
1.7
0.3
0
0.5
1
1.5
2
2.5
3
3.5
4
Q1 Q2 Q3 Q4
Retail prices Core inflation
Inflation rate in 2006 (%)
13,00%
For 2007, the National Bank of Serbia has planned only the For 2007, the National Bank of Serbia has planned only the
things it is certain to achievethings it is certain to achieve!!
Planned core inflation for 2007: 4 - 8%; NBS will target the lower band of
the corridor;
Target fulfillment alone will determine the future trajectory of the NBS
key policy rate in 2007!
Inflationary expectations are declining together with inflation!
Although there is still a need for a part of regulated prices to come closer
to market prices, it is important to mention prices that have in the
meantime moved down – Politika, petrol at NIS petrol stations, white
goods, etc.
Eltim - Serbia
Tehnomarket – Serbia
Tehnomania
Mediamarkt – Hungary
Topvision – Germany
RSD 86.195
RSD 64.999
RSD 77.999
HUF 159.999
EUR 1,098
EUR 828
EUR 994
EUR 625
EUR 549
Example: Samsung LE 27S71 LCD television set*
* Exchange rate: EUR 1 = RSD 78.5000
Differences between Serbian and foreign pricesDifferences between Serbian and foreign prices
cannot be put down to the exchange ratecannot be put down to the exchange rate!!
All All profit from price stabilization!profit from price stabilization!
Pensioners – semiannual indexation to price growth;
Our investors abroad – for every euro invested abroad, they need to
allocate (approximately) the same amount of dinars;
All people who save in Serbia – dinar and foreign currency savings,
voluntary pension funds, shares and other investments (which erode in
the context of dinar devaluation);
Corporate sector – price stability is the best way for the corporate sector
to finally focus on productivity and market competition, rather than price
and exchange rate movements!
Earlier criticisms such as “prices keep growing and the dinar is
unrealistically strong” are now obviously out of place!
Decision of the Monetary Policy Committee of 29 JanuaryDecision of the Monetary Policy Committee of 29 January
2007!2007!
The key policy rate of the National Bank of Serbia on 2-week repo
securities has been cut from 14.0% down to 13.0% per annum!
Key reasons:
Positive trend of declining core and headline inflation;
Need for additional sterilization in Q4 2006 due to
increased budgetary spending;
Lessened pressure on the dinar exchange rate;
Effects on inflation
Price movements in the first half of the year will be Price movements in the first half of the year will be
determined by the following factorsdetermined by the following factors
Low inflation rate in Q4 2006;
Appreciation effects;
Fall in prices of petroleum
products;
Restrictive monetary policy stance;
Strengthening of trust in the dinar.
Deferred price hikes – central
heating and electricity;
More expansive fiscal policies in
Q4 2006;
Constitution of Government;
...
Price reduction Price rise
412.4
0.00.010.018.2
120.3
0.0
-153.5
-259.4
-0.3-80.2
-2.5
-300
-200
-100
0
100
200
300
400
500
Aug Sep Oct Nov Dec Jan*
86
85
84
83
82
81
80
79
78
EUR mln
The National Bank of Serbia aims at notably reducing its The National Bank of Serbia aims at notably reducing its
role in exchange rate formationrole in exchange rate formation......
Net result in IFEM
Net purchase from exchange offices
Total effect on forex reserves
-40,1 -15,7 -9,7 +259,4 +153,5 -412,4
NBS interventions in IFEM August 2006 – January 2007 and RSD/EUR exchange rate
movements
* Until and including 25 January 2007.
Purchase
Sale
+162,1 +148,5 +154,4 +130,9 +86,0 +34,1
+122,0 +132,8 +144,7 +390,3 +239,5 -378,3
... ... and in 2006 its efforts in this direction were successfuland in 2006 its efforts in this direction were successful! !
0.79
1.552.03
5.87
0
1
2
3
4
5
6
7
2003 2004 2005 2006
1.491.69
1.931.75
0
0.5
1
1.5
2
2.5
2003 2004 2005 2006
3,8%44,1%50,9%69,1%
96,2%55,9%49,1%30,9%
0
1
2
3
4
5
6
7
2003 2004 2005 2006
Volume of interbank trade outside IFEM
Foreign exchange trade in and outside IFEM
Number of active days of NBS in IFEM
NBS purchases from exchange officesEUR bln
EUR bln
Banks – banks
Banks – NBS
EUR bln
* Until and including 26 January 2007.
-9,3%+14,2%
+13,4%+189%
251 252 240
203
131
0
50
100
150
200
250
300
2002 2003 2004 2005 2006
Foreign exchange market will be further liberalized over Foreign exchange market will be further liberalized over
the next three monthsthe next three months
As of 5 March, the functioning of the fixing session will change – the official middle exchange rate of the dinar
against the euro will be set based on the daily weighted average trade in currencies in the overall interbank
foreign exchange market;
As of 1 March, the NBS will receive only 3 currencies from exchange offices (EUR, USD, CHF);
On 1 January this year, the NBS cut the incentive fee for exchange offices to 0.5%; by the end of 2007, this
fee will be lowered to 0.1%.
2.19 2.282.84 3.12
4.94
9.02 8.87
0123456789
10
2001 2002 2003 2004 2005 2006 2007
NBS forex reservesEUR bln
For 2007, data as at 25 January.
Future exchange rate movements during 2007Future exchange rate movements during 2007
If necessary, the NBS will be ready to “iron out” excessive daily and
periodical oscillations, but without interfering with the overall exchange
rate trend;
Clients that have large foreign currency inflows and outflows should
safeguard against foreign currency risk – especially those that have
foreign currency inflow only!
The NBS aims to minimize the number of days of its participation in the
market in the capacity of buyer or seller!
Capital inflow in the first 11 months well exceeded the current Capital inflow in the first 11 months well exceeded the current account deficit – there is no 1990-1991 scenario!account deficit – there is no 1990-1991 scenario!
In December, annual growth rates of reserve money
and broad and narrow money supply stood at 41.7%,
39.8% and 37.1%, respectively;
Total sterilization in 2006 was RSD 239 billion – RSD
125 billion through repo operations and RSD 114 billion
against reserve requirement.
Import/export coverage ratio in the first 11
months of 2006 amounted to 58.1%, compared
to 49.8% in the same period in 2005 (excluding
effects of VAT introduction).
-1,602-2,248
1,4712,601
1,135
2,667
-3,000
-2,000
-1,000
0
1,000
2,000
3,000
4,000
5,000
6,000
I-XI 2005 I-XI 2006
in EUR mln
Borrowing
Current account
Foreign direct investment
Import and export movements (January-November)
6,159
10,6119,553
4,762
-1,500
500
2,500
4,500
6,500
8,500
10,500
Export Import
in EUR mln
2005 2006
+11,1%
+29,3%
Ratio of current account deficit to GDP declined in 2006 and, Ratio of current account deficit to GDP declined in 2006 and, according to projections, will be lower than in the preceding according to projections, will be lower than in the preceding two yearstwo years
Current account balance is improving
regardless of 2006 appreciation!
-8.2
-11.0
-9.6
-12.4
-10.8 -10.5
-14
-12
-10
-8
-6
-4
-2
02001 2002 2003 2004 2005
2006projection
Current account balance excluding grants (in % of GDP)
Private debt is gaining predominancePrivate debt is gaining predominance in total external debtin total external debt
Strengthening of EUR against USD had a notable effect on total debt (debt increased by 27.2%
in USD terms and 13.7% in EUR terms compared to end-2005).
Public external debt of the Republic of Serbia
5.8 5.8 5.96.8
6.0
0
1
2
3
4
5
6
7
8
9
2002 2003 2004 2005 November2006
EUR bln
Private external debt of the Republic of Serbia
2.3 2.53.2
5.4
8.1
0
1
2
3
4
5
6
7
8
9
2002 2003 2004 2005 November2006
EUR bln
Level and structure of external debt of the Republic of Serbia
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
2002 2003 2004 2005 30.11.2006.
0
5
10
15
20
25
30
35
40
45
50
55
60
65
Share in GDP (right scale)
in EUR bln
65.7% 64.3% 59.7% 51.9%
25,8% 27,2%32.3%
41,2%
in %
8.99.1 9.9
13.1
8.6% 8.5% 8.1% 6.8%
Private debt
Public debt
Kosovo and Metohija
14.9
54,0%
40,0%
6,0%
Source: NBS.
Prices of petroleum products have now returned to their Prices of petroleum products have now returned to their June 2005 levelJune 2005 level
World oil price trends reversed in
August 2006. From close to USD
70 in July, the price of Ural oil
declined to around USD 50 in
January this year. Over the past
five months, this has led to a 20%
drop in prices of petroleum
products.
0
10
20
30
40
50
60
70
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1
2005 2006 2007
40
50
60
70
80
90
100
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1
2005 2006 2007
Retail price of petrol MB 95
Ural oil price per barrel (USD)
In Q3 2006, GDP growth was aroundIn Q3 2006, GDP growth was around 4.6% 4.6%
Industrial production grew by
4.6% and processing sector
production by relatively high
5.3% in the first 11 months of
2006 compared to the matching
period of 2005;
Key contributors to such growth
were the production of basic
metals and non-metals, food
and chemical products;
Overall economic growth, including industry, has been slowing down: 8.4% in 2004, 6.2% in
2005, but 5.8% (preliminary) in 2006!
Serbia needs another “injection” and acceleration of reforms!
6.8
4.4
8.3
13.8
4.6
7.8 7.4
5.0
6.25.6
4.6
0
2
4
6
8
10
12
14
16
I II III IV I II III IV I II III
2004 2005 2006
in %Real GDP growth
Source: RSO.
Industry unit labour costs have declinedIndustry unit labour costs have declined
Industry productivity gains
(12.3% in the first eleven
months) outstripped growth in
real gross wages (11.9%); unit
labour costs therefore declined
by around 0.4%.
Movements in productivity and real wages in industry(2005=100)
60
70
80
90
100
110
120
130
1 3 5 7 2004
9 11 1 3 5 7 2005
9 11 1 3 5 7 2006
9 11
Productivity Real gross wages
In the second half of 2006, growth in lending activity underwent a In the second half of 2006, growth in lending activity underwent a
slowdownslowdown!!
2005 credit growth stood at RSD 149.4 billion, while in 2006 it equaled RSD 105.4 billion.
Lending activity slowed down appreciably in the latter half of 2006: absolute growth was lower than a
year earlier;
Lending activity growth in Q4 2006 drew mainly on domestic sources of financing (corporate, household
deposits, etc.).
27.4
46.5
25.4
38.240.0
12.4
56.6
8.3
0
10
20
30
40
50
60
2005 2006 2005 2006 2005 2006 2005 2006
Q1 Q2 Q3 Q4
Growth in lending activity RSD bln
Dinar savings always beat inflation!Dinar savings always beat inflation!
The National Bank of Serbia launched a campaign promoting dinar
savings, which not only bear a higher interest rate than foreign currency
savings, but also invariably beat inflation!
For banks, dinar savings deposits are the most attractive source of
financing, as they are subject to a reserve requirement ratio of only 10%,
compared to 40% and 45% ratios on foreign currency savings deposits;
The aim of the campaign are not NBS savings bills, but dinar savings in
commercial banks;
Over the coming months, the NBS will actively promote dinar savings in
all media – the first who start saving in dinars will get the best interest and
the best earnings!