According to central bank's inflation projections, a more significant drop in inflation is expected in the second half of the year, so that by the end of 2011, the inflation rate should be at about six percent, Vice Governor of the National Bank of Serbia Bojan Markovic said Wednesday.

At the presentation of February 2011 Inflation Report, Markovic said it was estimated that year-on-year inflation would continue up and move above the upper limit of the target tolerance band by the end of the first or the beginning of the second quarter and would then drop in the second half of the year.

“Monetary policy measures and the expected stabilization of food prices will be instrumental in reducing inflation in the second half of 2011 and bringing it closer to the 4.5 plus or minus 1.5 percent target set for the year-end,” he said.

Markovic stressed that the key risks to inflation projection were uncertainties regarding movements in public sector wages, regulated prices, food prices, the risk premium and inflation expectations.

Central bank wants to set up new arrangement with IMF

The National Bank of Serbia (NBS) thinks that the government should set up a new arrangement with the International Monetary Fund (IMF) after the current one expires, simply as a precaution, NBS Vice Governor Bojan Markovic said Wednesday.

Presenting the latest inflation report, he noted that Serbia had only used a part of the available IMF credit, so it did not need new funds, but simply an option to get them if needed.

According to Markovic, Serbia is a small country, so there are not many world known analysts who monitor its economic situation. Therefore, having the IMF assume such a role would be important to foreign investors.

IMF presence reduces the risks associated with the country, which makes it cheaper to take out new loans.

An IMF mission is currently in Belgrade and will stay until February 23. It is here for the final, seventh review of Serbia's economic performance under the Stand-By Arrangement.

The arrangement was signed in May 2009, providing Serbia with some EUR 3 billion to boost its foreign exchange reserve. So far, EUR 1.51 billion of those funds have been used.