14/01/2021
At its meeting today, the NBS Executive Board voted to keep the key policy rate unchanged at 1.0%.
In keeping the rate on hold, the Board was guided primarily by the achieved effects of the past robust monetary and fiscal policy measures, as well as the expected macroeconomic developments in the period ahead, i.e. the expectation that the timely taken economic measures will continue to exert a positive impact on financial conditions for corporates and households and on their disposable income.
Adequate support provided by the NBS and the Government to the Serbian economy is largely to be credited for the better economic outcome in 2020 than hoped for at the start of the pandemic, with a real GDP growth rate of -1.1%, as estimated by the national Statistical Office. The Executive Board expects that the country’s maintained favourable medium-term prospects and the measures taken by the Government and the NBS will contribute to the further recovery of domestic demand. This, along with the normalisation of external demand, will result in a more than complete recovery of our economy this year and its strong growth going forward. What gives the reason for optimism are the preserved production capacities and employment during the pandemic, the accelerated implementation of infrastructure projects, FDI inflow that remained relatively high and project-diversified, the secured favourable financial conditions, and the expected improvement of the epidemiological situation owing to the initiated vaccination. Labour market data on the rising employment rate and the maintained single-digit unemployment rate attest to the significance of the package of economic measures, which helped sustain favourable trends despite the challenges imposed by the pandemic.
The Board stresses that we have entered the eighth year of inflation being low, stable and firmly under control. In 2020, inflation moved in line with NBS projections and averaged 1.6%. In December 2020 it measured 1.3% y-o-y. An important pillar of low and stable inflation is the relative stability of the exchange rate, as well as anchored inflation expectations of the financial and corporate sectors, which illustrate the credibility of monetary policy. Despite a continued rise in wages and employment in the majority of sectors, demand-side pressures remain relatively muted, as evidenced by core inflation movements. According to the NBS projection, inflation will continue to move in the lower part of the target tolerance band, and will start its gradual approach to the target midpoint (3%) during 2022 on the back of the expected further recovery in demand.
Although the accelerated spread of the virus as of October last year, primarily in Europe, threatened to slow the initiated economic recovery, the available data for Q4 signal satisfactory resilience of the economy at the global level and in the euro area, which is our key trade and financial partner. We expect the pandemic to gradually calm in the coming period, owing to the started vaccination of the population, which will, along with the stimulus adopted by the ECB and fiscal stimuli of many countries, contribute to the recovery of the euro area, and thus of our external demand. A cautious conduct of monetary policy is mandated by the still present uncertainty in the international financial market and trends in the international commodity market, primarily in the market of oil, whose price has been going up due to elevated expectations that the global recovery is on a gradual recovery path. Still, the Executive Board emphasizes the resilience of our economy to external shocks, as a result of responsible running of the economy in the past years and an adequate response to the current global crisis.
As noted by the Executive Board, the period ahead, particularly the current winter, will witness challenges concerning the course of the pandemic and the impact on global and domestic economic developments. Therefore, economic policy makers will aim to support further recovery of our economy, preserve production capacities and employment, encourage further growth of the export sector, and domestic and foreign direct investment. The NBS will continue to carefully monitor the trends and the impact of key factors at home and abroad on inflation, financial stability and the speed of economic recovery. We shall continuously assess all the measures taken so far in order to support further economic recovery, without prejudice to price and financial stability.
The next rate-setting meeting is scheduled for 11 February 2021.
Governor’s Office
