National Bank of Serbia (NBS) Governor Dejan Soskic has stated that Serbia has to prove that it can fulfill its financial obligations on a regular basis, adding that the new government needs to take faster reform steps.

He expressed belief that the pressures on the exchange rate are of a temporary character i.e. until the establishment of a new government and its necessary reform steps, which should lead to a positive revision of the arrangement with the International Monetary Fund (IMF) and solid fiscal consolidation of the country in the middle term.

Soskic noted that Serbia's inflation in March reached 3.2 percent on the annual level thus staying within the target inflation.

“We expect a slight drop in April, and a minor inflation increase in May with the arrival of a new agricultural season but within the domain of the target inflation,” the NBS governor said in an interview for Belgrade daily Vecernje Novosti.

“The recent measure of careful reduction in the mandatory foreign currency reserves were aimed at stabilization of inflation in the coming quarter, reduction of depreciation in the foreign exchange market, encouragement of long-term bank funding, and partial reduction in bank funding costs,” Soskic said.

He underlined that the depreciation in the foreign exchange market is conditioned by the absence of positive revision of the arrangement with the IMF, withdrawal of certain investors from Serbia, and uncertainty conditioned by the current political situation.

The country's public debt needs to stop growing as soon as possible, and the budget deficit should be reduced to the framework of the arrangement with the IMF, Soskic underlined.

For this reason, the NBS interventions in the foreign exchange market have intensified since the beginning of the year selling a total of EUR 708.5 million on the foreign market in order to alleviate pressures on the exchange rate, which could result in higher inflation and greater financial instability of the county, he said.