Sept. 7 (Bloomberg) -- Serbia’s new central bank governor said tighter parliamentary control over the institution won’t affect its independence and urged the government to cut the budget deficit to help the bank conduct monetary policy.
Improved fiscal policies would support the bank’s inflation targeting, even as price growth may reach 10 percent by the end of the year, Jorgovanka Tabakovic told reporters in Belgrade today. The bank maintained its forecast for the economy to contract 0.5 percent this year and grow 2.5 percent in 2013, she said.
“I believe this government will seriously work on fiscal consolidation and on reducing the deficit” to enable the Narodna Banka Srbije “to conduct monetary policy in a more relaxed way,” she said. The shortfall reached 7.2 percent of gross domestic product and public debt hit 54.7 percent of GDP at the end of June, both above their respective targets.
The International Monetary Fund suspended a loan deal with Serbia in February over the fiscal failure. An IMF mission is due in Belgrade next week for talks on Serbia’s economic outlook and a new central bank law the fund has criticized for impinging on the bank’s autonomy. Tabakovic said she expects a new arrangement with the IMF by year’s end.
The bank unexpectedly kept the benchmark interest rate at 10.5 percent yesterday after raising it three times since June. The inflation rate rose to 6.1 percent in July, above the bank’s target range, will peak in the first half of 2013, “but it won’t go much above 10 percent,” Tabakovic said.
Premier Ivica Dacic said yesterday the state will boost the budget by as much as 1 billion euros ($1.28 billion) through spending cuts and higher taxes.
The current-account deficit, at 14 percent of GDP at the end of June, will narrow toward the end of the year and average 7.5 percent in 2013, while foreign-exchange reserves were “satisfactory” at 9.9 billion euros ($12.63 billion) on Sept. 4, Tabakovic said.
The banking industry is “quite stable,” with a capital-adequacy ratio of 17.2 percent and a rate of non-performing loans at 19.7 percent, she said. The rate was 8.5 percent among individual borrowers and 23.7 percent among corporate clients.
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