---

05/10/2018

The Council of the Central Bank of Montenegro held its thirty-second session today, chaired by the Governor, Radoje Žugić.

The Council considered and adopted the Report on Central Bank of Montenegro Business Activities and Policy Implementation for August, which presents the key activities of the Central Bank during the mentioned month. It was noted that the activities of the Central Bank conducted in August 2018 were implemented in line with the planned commitments established by the Central Bank Work Programme for the current year. 

The Council also considered the Macroeconomic Report of the CBCG for the Second Quarter of 2018. It was noted that the economic indicators for the first six months of 2018 indicate a continuation of positive developments from the previous year and that all of those are above the projected values. Specifically, in the first two quarters of 2018, significant growth was registered in most sectors year on year. The volume of activities increased in the construction, industry (significantly high growth was recorded in the energy sector), trade, transport and tourism.

The banking sector in Montenegro at the systemic level is characterized by stability, liquidity and solvency. Non-performing loans (excluding interest and accruals) amounted to 205 million euro at end-June and accounted for 7% of total loans (the downward trend in non-performing loans continued, therefore the share of NPL’s decreased to 6.75% at end-August). It was concluded at the Council session today that although having a downward trend, non-performing loans still present the vulnerability of the banking system, at the individual rather than at the systemic level. 

The average weighted effective interest rate on total loans continued the perennial downward trend, reaching a historical minimum value of 6.47% in June 2018. Compared to December 2017, the average weighted effective interest rate was lower by 0.34 percentage points, while compared to June 2017, it recorded a decrease of 0.59 percentage points. It was concluded that interest rates continue to represent a high expenditure for treating the vulnerability of the real sector. 

It was noted in the Inflation Report Quarter II 2018 that inflation was on the increase as a result of higher excise taxes on tobacco products, the global oil price growth, which also affected the rise in fuel prices in Montenegro, as well as the increase in the VAT rate.

As for inflationary expectations, a survey conducted by the CBCG shows that most banks and companies expect inflation between 2.5% and 3%. The surveyed banks and companies expect further decline in interest rates and production and investment growth, which will have an anti-inflationary impact.

The model estimate for end-2018 forecasts inflation in the range from 2.4% to 3.6%, with a central projection of 3%. A very similar is the CBCG expert estimate, which projects inflation in the range of 2% to 4% with a central projection of 3%.

The Council also discussed other current issues under its competence at the session held today.