11/02/2021
At its meeting today, the NBS Executive Board voted to keep the key policy rate at 1.0%.
In making the decision, the Executive Board was guided primarily by the continued stimulating effect of the previously adopted monetary and fiscal policy measures and by the announcement of an additional package of fiscal measures. This means that coordinated monetary and fiscal policy measures will continue to have a positive effect on the financing conditions for corporates and households and on their disposable income.
Strong support of the NBS and Government to our corporates and households will ensure the attainment of the pre-crisis level of economic activity in Q2. Industrial production, retail trade turnover and exports have already reached pre-crisis levels and we expect that other service sectors will also completely recover as we go further into the vaccination process, the progress of which has placed Serbia among the best countries in the world. The rebound in domestic demand will be supported by the continued implementation of infrastructure projects, favourable financing conditions as a result of past monetary policy easing, as well as the preserved labour market in the face of the pandemic. The resilience of the labour market and the significance of the package of economic measures are evidenced by the rising employment and the maintained single-digit unemployment rate during the pandemic. In the Board’s view the announced fiscal package will provide an additional impetus to domestic demand and economic recovery. Apart from this, FDI inflow to Serbia of EUR 3.0 bn in 2020 was the highest in the region and mostly channelled to tradable sectors, which should, along with the expected rebound in external demand, lead to the double-digit growth in exports this year.
We have entered the eighth consecutive year of inflation being low, stable and firmly under control. According to NBS projection, y-o-y inflation will move in the lower half of the target tolerance band until the end of the projection horizon. Its moderate rise in the short run will result primarily from the expected increase in the prices of electricity and petroleum products on account of the higher global oil price. The ensured relative stability of the exchange rate and anchored inflation expectations of the financial and corporate sectors remain an important pillar of low and stable inflation.
Uncertainty continues to stem from external environment and is mostly associated with the efficiency in pandemic management and the vaccine production and rollout at global level, as this will determine the pace of the world economic recovery and developments in the international financial and commodity markets. Large-scale monetary and fiscal measures of leading world economies and the initiated mass vaccination have eased uncertainty in the international financial market. However, caution in monetary policy conduct is needed in view of the rise in the global oil price since last November, as well as the surge in other primary commodity prices, driven by the expectations that the world economy is on the path of recovery.
The Executive Board underlines that the focus of economic policy makers will stay on supporting a swift recovery of our economy, preserving production capacities, employment, further growth of the export sector, and a favourable investment environment. The NBS will continue to watch closely the movement and impact of key factors from the domestic and international environment on inflation, financial stability and the speed of economic recovery. It will continuously assess the measures taken so far, in order to provide support to further economic recovery, without jeopardising price and financial stability.
At today’s meeting, the Executive Board adopted the February Inflation Report, to be published on 18 February. Apart from the new inflation and GDP projections, the Report also gives detailed explanations of monetary policy decisions and the underlying macroeconomic developments.
The next rate-setting meeting will be held on 11 March.
Governor’s Office
