National Bank of Serbia decides: Key policy rate kept at 5.75%

Photo: Shutterstock

The Executive Board of the National Bank of Serbia (NBS) today decided to keep the key policy rate on hold, at 5.75%. The deposit (4.5%) and lending facility (7.0%) rates have not been changed, either.

Recommended

The NBS explained the decision by stating that though inflation retreated significantly during 2023, and then stabilized as of mid-2024, a cautious monetary policy should still be pursued, citing the introduction of high tariffs and the uncertainty of policy going forward are dampening global growth prospects and driving down the prices of primary commodities, notably oil.

The central bank noted an increase the risks of a halt in global supply chains and a rise in global inflation, but the Board also took into account the monetary policy accommodation by the ECB in the prior period, which should reflect on more favorable conditions of euro-indexed borrowing in Serbia.

During the first two months of the year, inflation has been consistent with NBS expectations, moving around the upper bound of the target tolerance band, and according to the bank's projection, inflation will stay at a similar level in the coming months, i.e. until mid-year.

It is expected to slow in the second half of the year, gradually approaching the target midpoint of 3% where it is anticipated to stay until the end of the projection horizon.

Such inflation movements should be supported by the still tight monetary policy effects, onset of the new agricultural season, assuming it is average, and the anticipated decline in petroleum product prices in line with the futures, the bank said.

The decrease in domestic inflation will also be underpinned by lower imported inflation and the expected slowing of real wage growth. As a result, core inflation should slow to around 5% already from March and approach headline inflation, the NBS added.

The Executive Board expects that economic activity will gather pace in the second half of the year, driven primarily by supply-side factors, and most of all by the planned acceleration of electric car and tire production, the activation of new capacities in the energy sector, as well as the implementation of infrastructure projects within the Serbia EXPO 2027 program, which will exert both direct and indirect positive effects on our economy.

Support to economic growth also comes from the around 10% increase in lending to corporates and households, as a result of past monetary policy easing by the NBS and ECB, the central bank said.

The NBS Executive Board will continue to follow closely trends in the domestic and international markets and make monetary policy decisions on a meeting-to-meeting basis depending on the assessment of incoming data, in order to preserve financial stability and favorable growth prospects.

The next rate-setting meeting has been scheduled for May 9.

(Telegraf Biznis)