10.10.2024.
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: 4.5% and 7.0%, respectively.
In making the decision, the Board highlighted that the key policy rate has been cut by 75 bp in total since June and that the effects of past monetary policy easing will play out in the coming period as well. As noted by the Board, although inflation has returned within the target tolerance band and continues to move therein, monetary policy caution by the NBS is mandated by the unpredictability of macroeconomic developments in the international environment and mounting geopolitical risks, including their impact on the global prices of energy and other primary commodities. The global crude oil price hikes so far have been contained owing primarily to ample supply and substantial inventories. However, there is pronounced concern over the potential detrimental impact of further escalation of the Middle East conflict on oil flows from this key export region, which may fuel global oil prices in the period to come. This may reflect on global inflation, the pace of monetary easing by leading central banks and global financial conditions.
On the other hand, the Executive Board expects that Serbia’s investment grade granted by Standard & Poor’s will contribute to a lower country risk premium and more favourable financing conditions. This will support a further rise in income available for investment and consumption, and, by extension, economic growth. Monetary policy caution is also needed in view of this year’s agricultural season at home, which was affected by unfavourable weather and drought over summer months, reflecting on the subdued supply of agricultural commodities and their higher prices.
Inflation in Serbia is within the target band (3±1.5%) and on a path consistent with the NBS projection. In August, as well as in July, y-o-y inflation measured 4.3% and monthly 0.4%, in line with the average monthly outturns since the beginning of the year. The monthly inflation dynamics in August was marked by the rise in food and non-alcoholic beverage prices (0.9%) and the adjustment of some administered prices, while the prices of petroleum products declined (3.4%), following in the footsteps of global oil prices. In the coming period inflation should continue to move within the target band, slowing until the end of the year to around 4% and gradually converging to the 3% midpoint in the course of 2025. Such inflation profile will be underpinned primarily by the still restrictive monetary conditions, lower imported inflation and inflation expectations.
In its monetary policy decision-making, the Executive Board had in mind that real sector indicators continued recording positive trends in Q3, supported by disinflation, real wage growth and unemployment cuts, as well as by the ongoing investment cycle. Economic growth is also supported by lending activity, which stepped up in August to 5.9% y-o-y, owing to a more favourable price of borrowing amid expected and then initiated monetary policy easing by the NBS and ECB.
The NBS Executive Board will continue to follow closely and analyse developments in the domestic and international market 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 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 7 November.
Governor’s Office
