12/08/2021
At its meeting today, the NBS Executive Board voted to keep the key policy rate at 1.0%.
As assessed by the Executive Board, the effects of past monetary and fiscal measures can also be expected going forward, helping maintain the favourable financing conditions for corporates and households, and thus propping up their disposable income.
The Board noted that economic activity indicators since the start of the year have exceeded expectations – according to SORS estimate, GDP grew 13.4% y-o-y in Q2, as a result of continued positive trends in the economy, but also the low last year’s base, when the most stringent epidemiological measures were in place. At the quarterly level, GDP is estimated to have increased 1.2% seasonally-adjusted. Such outcome is underpinned by the improved epidemiological situation globally and at home, the effects of monetary and fiscal stimuli in the domestic market, as well as by the continued implementation of infrastructure projects. On the production side, the strongest positive contribution to growth in Q2 came from the services sector, which was hit by the pandemic the most last year, while manufacturing and construction provided significant contributions, as in the quarter before.
Looking at the inflation profile, the Board stated that inflation has moved around the target midpoint (3±1.5%) since April. As in other countries of the region, higher y-o-y inflation relative to the previous quarter is mainly attributable to the low base for petroleum product prices from the same period last year, as well as to the higher cost-push pressures fuelled by the surge in the global prices of oil and other primary commodities in the previous months. At the same time, the Board underlined that there are no major inflationary pressures on the demand side. The absence of major inflationary pressures is also indicated by the persistently low and stable core inflation (around 2%) and the short- and medium-term inflation expectations, which revolve around the target midpoint in case of the financial sector and are even lower in case of the corporate sector. The Executive Board expects that inflation will continue to move within the target tolerance band in the period ahead.
Though movements in the international environment are still greatly dependent on the course of the pandemic, global economic recovery is picking up the pace thanks to vaccine rollout and the gradual elimination of epidemiological measures, with a continued implementation of fiscal and monetary stimuli in a number of countries. New virus strains still pose a risk to global growth, as do occasional halts in supply chains and imbalances in the labour market since they ramp up production costs. Growth in our key economic partner, the euro area, has been accelerating since April, therefore its projections for this and the following year have been revised up. So far, accelerated growth in the euro area, as well as higher inflation since the start of 2021, has not driven the ECB to lower the degree of monetary policy accommodation, because higher inflation factors are judged to be temporary. The Fed also has not changed its monetary policy so far, though it noted progress in achieving its objectives, which it will continue to assess at upcoming meetings. Global financial liquidity is still exceptionally high, which reflects positively on capital flows to emerging countries, Serbia included. On the other hand, uncertainty is still present in the global commodities market, notably in terms of movements in the global price of oil, given that in July it was more than 15% above the pre-pandemic level, i.e. the average for 2019. The global prices of other primary commodities, including global food prices, were also at significantly higher levels.
The Executive Board underlined that safeguarding price and financial stability will remain a priority of the monetary policy, together with support to faster growth of our economy and employment, further rise in the export sector, as well as favourable investment environment. The NBS will continue to carefully monitor the trends and impact of the key factors in the domestic and international environment on inflation, financial stability and the speed of economic recovery, and to adjust its measures accordingly, in the interest of our corporates and citizens.
At today’s meeting, the Executive Board adopted the August Inflation Report with new macroeconomic projections, which will be presented to the general public in more detail at the press conference on 18 August.
The next rate-setting meeting is scheduled for 9 September 2021.
Governor's Office
