11/04/2024
At its meeting today, the NBS Executive Board voted to keep the key policy rate on hold, at 6.50%. The rates on deposit (5.25%) and lending (7.75%) facilities were also kept unchanged.
The Board’s decision to keep the key policy rate on hold for the ninth consecutive month was motivated by the declining, though still elevated global inflationary pressures, the current medium-term inflation projection, and global uncertainty over energy and primary commodity prices. The Board also took into account the past hikes in the key policy rate and required reserve ratios, and the continued impact of their effects on inflation. The pass-through of hitherto monetary tightening on interest rates in the money, lending and savings market, and a fall in inflation expectations, signal the efficiency of the monetary policy transmission mechanism.
Furthermore, global inflation continues to slow, with the risks as to its further movement being increasingly balanced. In light of the subsiding inflationary pressures and the effects of restrictive monetary conditions, many central banks are projecting with increasing certainty that inflation in their countries will return within the target band in H2 2024 or H1 2025. Caution in the euro area and the USA is still mandated by core inflation, which continues to move above headline inflation, mainly due to higher wages. This is why the ECB and the Fed are cautious as to the start of the monetary easing cycle. The NBS Executive Board judges that caution in domestic monetary policy conduct is needed also due to rising global oil prices after the OPEC+ countries extended supply curbs to Q2, in an environment of elevated geopolitical tensions, longer transport routes and higher logistical costs.
Consistent with the Executive Board’s earlier announcements, y-o-y inflation stayed on a firm downward path this year, having fallen to 5.6% in February. A critical role in this respect was played by the slowing of y-o-y food inflation to 4.7% in February, which is below the level of headline inflation, as well as of core inflation to 5.2% (CPI excluding food, energy, alcohol and cigarettes). The Executive Board expects inflation to decrease further and return within the target band probably in May this year, which is somewhat earlier than envisaged by the February inflation projection. Inflation should approach the target midpoint by the year end and hover around that level in the medium term. Such inflation profile will be underpinned by the past monetary policy tightening, the slowdown in imported inflation, persistently weak external demand and the expected further drop in inflation expectations, which in the case of the financial sector are now within the NBS target band also for one year ahead.
Available data on the real sector point to better than expected outturns in January and February. Y-o-y, industrial production growth stepped up to around 8% in this period, led by the around 9% increase in manufacturing. At the same time, real retail trade turnover picked up by 6.4% y-o-y, and the rising number of tourists and their overnight stays suggests the continuation of positive trends in tourism.
Despite weaker external demand, further progress was recorded in external trade too. According to SORS data for January–February, exports grew 3.2% y-o-y (led by manufacturing and agricultural exports), while imports contracted by 1.3%, amid still lower energy imports.
Having in mind the weakening of global inflationary pressures and the gradual recovery of the euro area, as well as the expected further acceleration of planned investment projects in transport, energy and utility infrastructure, the NBS Executive Board forecasts Serbia’s GDP growth this year within the 3–4% range, with the 3.5% central value.
The Board stresses that future monetary policy decisions will depend on the movement of key inflation factors at home and abroad and on the pace of domestic inflation’s further slowdown. Decisions will be made taking into account the maintenance of financial stability and favourable growth prospects.
The next rate-setting meeting will be held on 10 May.
Governor's Office
