Serbia, Announced restrictive monetary policy, STOP for cash credits

Governor of National Bank of Serbia (NBS), Radovan Jelašić, has announced increase in obligatory reserves on foreign currency deposits of companies and debts made abroad from 29 to 35%, as well as obligatory deposit of 20% on credits with repayment period of up to 10 years, except for mortgage loans.

Due to macroeconomic movements and reached inflation rate, as well as due to necessity for its reduction in 2006, the National Bank of Serbia will try to fill the holes through which consumption growth obtained financial stimulation by means of entire set of measures that will be put in effect on November 10, 2005. After the first nine months, inflation has already reached redefined scope of 13.7%.

In the future, NBS’s basic parameter for management of monetary policy will be repo rate on sale of securities with time limit amounting to two weeks. With each increase in this rate, NBS will send the signal to the market to increase level of restriction of monetary policy. At the same time, the rate of obligatory reserve on foreign currency savings for physical persons will be reduced from 41% to 40% and the aim is that the obligatory reserves be the same for both physical and juristic persons on the basis of foreign currency deposits.

One of the aims of monetary policy, which is completely in accord with IMF, is the reduction of level of euroizaton. Starting November 10, NBS will give its best to reduce obligatory reserves on dinar deposits from 20% to 18%.

This measure is necessary in order to redirect credit potential of the banks to economy concerning the fact that, of total of 81.2 billion banking investments, 46.8% were directed to the population. Therefore, the participation of the economy in credits has been reduced by 6.6% in comparison with the last year.

In the first nine months of 2005, average monthly growth of credits approved to population amounted to 4.2 billion CSD, whereas in 2004 that average amount was 2.6 billion CSD.

The package of measures that should reduce credit indebtedness of population include some that can be put in effect not before than February 1, 2006, and they are related to leasing. According to the changes in law on financial leasing, the Central Bank is obliged to set six-month deadline for the companies that deal with this business to adapt to the new terms of operations, which include NBS’s supervision.
Starting February 1, 2006, the report from the Credit Bureau will be necessary for obtaining of credit. The report will be a proff of credit worthyness of the client who is buying goods on leasing or credit. In case the report is not required, bigger reserves than usual will be required. All leasing companies will be obliged to report their transactions with physical persons to the Credit Bureau and state unique leasing compensations in order to make it possible for the users of their services to know how big obligations they take over and to be able to compare them on the market.

The aims of the NBS’s measures are lowering of inflation rate, which will amount to 16-17% in 2005, lowering of level of euroization, increase in dinar savings and slowing growth of credits approved to the population down.

The thing that is important is that the policy of the exchange rate of dinar will not be changed because the significant depretiation or apretiation would have negative effects either on inflation or on payment balance.