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Ten Years of Inflation Targeting in Serbia

It is ten years since the adoption of the Memorandum of the National Bank of Serbia on Inflation Targeting as a Monetary Strategy and the implementation of this strategy as the official monetary policy regime. Today, a decade after the start of implementation of inflation targeting, we are proud to say that the National Bank of Serbia managed to curb inflation to a level comparable to that in advanced economies and to keep inflation low and stable for the last five years. There are two distinct subperiods within the span of these ten years, i.e. two phases of the implementation of inflation targeting with clear differences in terms of successfulness in achieving the central bank’s primary objective – price stability on sustainable grounds. 

The initial years of inflation targeting (2009–2012) saw high and volatile inflation rates, reaching 14.7% in April 2011. As of 2013, inflation dropped sharply, to around 2%, where it has stayed on average for the last five years. Nowadays, inflation is at a level comparable to that recorded in advanced European economies – November inflation measured 1.9% y-o-y.

Our experience in inflation targeting has shown that inflationary pressures cannot be suppressed on a durable basis without firmly anchored inflation expectations and full coordination of monetary and fiscal policies. This is evidenced by relatively high and volatile inflation until end-2012. At the start of the first term in office of Governor Tabaković, adequate and timely monetary policy measures were taken and relative stability of the exchange rate was achieved. The measures yielded their full effect in the course of 2013 – inflationary pressures were curbed on a durable basis. Besides, inflation expectations went down, reflecting, among other things, intensive communication efforts of the National Bank of Serbia, which clearly conveyed the message that all measures and activities needed to achieve and maintain price stability would be taken. Ever since then inflation has been low and stable, owing primarily to stronger credibility of monetary policy and its full coordination with fiscal policy.

The implementation of the inflation targeting strategy played an important role in ensuring sustainable price stability and anchoring inflation expectations. The flexibility of the strategy enabled us to adjust it to the specificities of the domestic economy and, thus, to increase its efficiency. Such an integral approach has brought greater business and investment certainty, which coupled with the stronger confidence of market players, corporates and households, helped put our economic growth on a sound footing.

Analyses of the strengths and weaknesses of various monetary strategies have shown that the inflation targeting regime is the most appropriate to our circumstances because it supports the achievement of the desired results: 

  • environment characterised by low and stable inflation,
  • stronger confidence in the national currency and, consequently, its greater use,
  • increased resilience of the economy to shocks from the international environment, as well as to changes in the business environment that can be reasonably expected during the process of Serbia’s accession to the EU.

For five years in a row we have seen low inflation, anchored inflation expectations, broad stability of the exchange rate and further strengthening of financial stability. These are the clearly recognisable results of the National Bank of Serbia, based on which we have built our credibility and contributed to sustainable economic growth and a higher standard of living of our citizens. Similar assessments of our work and results come from the IMF and other relevant international financial institutions. Thus, in its latest press release on upgrading Serbia’s outlook from stable to positive, Standard & Poor’s underscores that the National Bank of Serbia has proved operational independence with its effective steps and actions under the inflation targeting regime, has earned credibility and anchored inflation expectations, resulting in the preservation of low and stable inflation.

In the years to come, the National Bank of Serbia will remain committed to maintaining price and financial stability, all with a view to supporting further growth of our economy and the rise in the standard of living of our citizens. The National Bank of Serbia will analyse carefully the efficiency of taken monetary policy measures and the best international practice, mindful, however, of the specific features of the domestic economy in order to ensure the best possible framework for successful functioning of monetary policy in the coming period too. 

Governor’s Office