10/04/2025
At its meeting today, the NBS Executive Board voted to keep the key policy rate on hold, at 5.75%. It did not change the deposit (4.5%) and lending facility (7.0%) rates either.
When making the decision, the Board noted that though inflation retreated significantly during 2023, and then stabilised as of mid-2024, a cautious monetary policy should still be pursued given that inflation at home is largely dependent on developments in global commodity and financial markets that still give rise to concerns sparked by uncertainty. On the one hand, the introduction of high tariffs and the uncertainty of policy going forward are dampening global growth prospects and driving down the prices of primary commodities, notably oil. On the other hand, they increase the risks of a halt in global supply chains and a rise in global inflation. The Board also took into account the monetary policy accommodation by the ECB in the prior period, which should reflect on more favourable conditions of euro-indexed borrowing in Serbia. Uncertainty as to the impact of US tariffs on euro area economy will affect the ECB’s decision on further monetary policy easing. Based on current announcements, the Fed will most likely be more cautious and refrain from trimming its rate for some time yet. The prices of some food inputs in the global exchanges (cocoa and coffee) that recently reached their maximum levels, as well as a weaker agricultural season at home last year, will continue to impact food prices for some time, whereas with the arrival of the new agricultural season the situation should stabilise.
Since the start of the year, inflation has been consistent with our expectations, moving around the upper bound of the target tolerance band in the first two months. Under the NBS’s projection, inflation will stay at a similar level in the coming months, i.e. until mid-year. It is expected to slow in the second half of the year, gradually approaching the target midpoint of 3% where it is anticipated to stay until the end of the projection horizon. Such inflation movements should be supported by the still tight monetary policy effects, onset of the new agricultural season, assuming it is average, and the anticipated decline in petroleum product prices in line with the futures. The decrease in domestic inflation will also be underpinned by lower imported inflation and the expected slowing of real wage growth. As a result, core inflation should slow to around 5% already from March and approach headline inflation.
Considering developments in the real sector, the Executive Board concluded that activity in the production and service sectors has slowed somewhat in the initial months of the year, after last year’s GDP growth of 3.9% which was among the highest in Europe. In January and February taken together, activity in manufacturing stagnated, while growth in trade and tourism turnover slowed, especially in February. Rising protectionism worldwide, new tariffs and issues in the European automobile industry, together with blockades and protests in the domestic market which have led to some deferral of investment and consumption, represent a risk to Serbia’s economic growth. However, the Executive Board expects that economic activity will gather pace in the second half of the year, driven primarily by supply-side factors, and most of all by the planned acceleration of electric car and tire production, the activation of new capacities in the energy sector, as well as the implementation of infrastructure projects within the Serbia Expo 2027 programme, which will exert both direct and indirect positive effects on our economy. Support to economic growth also comes from the around 10% increase in lending to corporates and households, as a result of past monetary policy easing by the NBS and ECB.
The NBS Executive Board will continue to follow closely 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 will take place on 9 May.
Governor's Office
