13/03/2025
At its meeting today, the NBS Executive Board voted to keep the key policy rate at 5.75%, as well as the rates on deposit and lending facilities – at 4.5% and 7.0%, respectively.
In making the decision, the Board highlighted that the key policy rate was trimmed on three occasions in 2024, by 25 bp each time, and has stood at 5.75% since September, with the effects of these cuts expected to play out in the coming period as well. As stated by the Board, despite a significant decline in inflation and its stabilisation, it is necessary to continue to exercise a cautious monetary policy stance, given the ongoing geopolitical tensions, growing protectionism, and trade policy uncertainty globally. Caution is also needed in light of the uncertainties concerning the global prices of energy and other primary commodities, as well as the prices of some food raw materials, particularly coffee and cocoa, which have recently touched their record highs on global exchanges.
Since the beginning of the year inflation has been trending around the upper bound of the target tolerance band, its dynamic dictated by the higher prices of petroleum products, hikes in the prices of some food products – vegetables, coffee and confectionery – as well as the prices of utility services. Even so, y-o-y growth in food prices continued to hover below headline inflation, measuring 4.3% in February. The Executive Board was aware that according to the NBS’s February central projection, after moving close to the upper bound of the tolerance band early in the year, inflation should gradually slow down as of Q2 and come close to the midpoint by the year’s end. This is also the level around which inflation will hover until the end of the projection horizon. Such inflation movements will be facilitated by the still tight monetary policy conditions, lower imported inflation, anticipated slowdown in real wage growth, anticipated fall in petroleum product prices in line with futures and lower fruit and vegetable prices, assuming an average agricultural season this year.
SORS confirmed the previously issued estimate of real GDP growth in Q4 2024 of 3.3% y-o-y and revised up the previous two quarters, meaning that growth for the whole of 2024 equalled 3.9%. According to the NBS’s projection, this year’s GDP growth will measure around 4.5% driven by domestic demand, notably personal consumption and fixed investment. At the same time, private consumption growth will be based on higher disposable income and positive trends in the labour market, and investment growth on increased corporate profitability, the expected continuation of high FDI inflows, planned government capital expenditure and, in particular, the implementation of infrastructure projects as part of the Serbia Expo 2027 programme. Investment growth should also be propped up by more favourable financial conditions thanks to past monetary policy easing by the NBS and the ECB. At this point, it is difficult to gauge the extent to which rising protectionism worldwide and the introduction of new tariffs will affect economic activity at home, and there is also the risk that blockades and protests could lead to the deferral of some investments and consumption. Real sector indicators for January show that there were no major delays in the production sector so far, especially in the industrial production, and that activity continued up in the service sectors, but FDI inflows have slowed somewhat in the year to date.
The NBS Executive Board will continue to follow closely and analyse 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, the outlook for inflation and its key factors, and the effects of past monetary policy measures. In making its decisions, the Board will remain mindful of the preservation of financial stability and favourable growth prospects.
The next rate-setting meeting where economic developments will be considered is scheduled for 10 April 2025.
Governor’s Office
