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11/04/2011

The twelfth meeting of the Council of the Central Bank of Montenegro, chaired by the Governor Mr. Radoje Žugić, was held today at Cetinje.

The Council adopted the Central Bank of Montenegro Annual Report, Financial Statements and Auditor's Report 2010, Financial Stability Report and the Annual Inflation report. The CBM Annual Report is submitted to the Parliament for its consideration, and for the first time, pursuant to the Central Bank of Montenegro Law, the Financial Stability Report and the Annual Inflation Report will be submitted to the Parliament for information purposes. The Financial Statements and Auditor's Report 2010, as a part of the CBM Annual Report, is also submitted to Parliament for information purposes.

The CBM Annual Report analyzed macroeconomic environment in which monetary policy was carried out, as well as the execution of CBM Policy for 2010. This Report provided macroeconomic forecasts for 2011, as well as CBM Policy with guidelines for 2011. The Report stated the following: monetary and fiscal stability was maintained in 2010, intensified supervision of the banking system with significant recapitalization of banks was present, the payment operations functioned efficiently with some minor delays, international reserves were placed following the principles of soundness and liquidity, and the CBM contributed significantly to the EU accession process.

The analysis of financial statements pointed to the most important reasons and activities leading to gaining revenues and execution of expenditures in 2010. The following financial reports were compiled pursuant to International Financial Reporting Standards (IFRS) and International Accounting Standards (IAS): Balance Sheet and Income Statement as of 31 December 2010, Cash flow statement in 2010, Balance sheet and Statement of changes in capital as of 31 December 2010. The report indicated that total CBM revenues amounted to EUR 13.47 million in 2010 and that they declined by 20% in relation to revenues recorded in the previous year. Total expenditures amounted to EUR 12.44 million, being by 24% lower in relation to expenditures recorded in 2009. The Auditor’s report stated that financial statements present fairly, in all material respects, the financial performance of the CBM.

The Financial Stability Report recognized that the existing risk level may be characterized as moderate. Banking system is sound and highly liquid, yet there is high level of non performing assets. Further increase in economic illiquidity has been indicated as the element of financial system stability risk. Capital market is still in turmoil, but it has not had strongly affected the financial system stability yet. Besides the standstill at the insurance market, it is stable and does not represent a threat to the financial system stability. The level of public debt is moderate, but its increasing trend is for a concern. The gradual recovery of the real estate market is expected, and the expected growth in 2011 will have positive effects to the financial stability.

The Inflation Report pointed to extremely low inflation rate in the previous year. The increase in prices is expected in 2011, primarily as a result of external factors. Prices of food and fuels have already increased at the global market. The recovery from the crisis has affected the increase of aggregate demand globally, and there are already visible pressures to the price increase, as a result of expansive measures of monetary and fiscal policy applied in combating the crisis.

The forecasted inflation in 2011 will range between 2.75% and 4.75%, but there is high level of uncertainty due to transmission of negative shocks from the global market. Moreover, natural disasters and political instability (primarily in countries exporting fuel) additionally pressure the price growth.