13.02.2025.
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 has stood at 5.75% since September 2024, when, in the current monetary policy easing cycle, it was cut by 25 bp for the third time, following cuts in June and July of the same year. The effects of these cuts can be expected to play out in the coming period as well. As stated by the Board, although inflation is moving within the target band, it is necessary to continue pursuing a cautious monetary policy, bearing in mind the conditions in the international environment. The complexity of these conditions is evidenced by the fact that global inflation remains generally high, while economic growth in many countries and regions is relatively slow. However, the greatest concern continues to stem from the unpredictability of macroeconomic developments in the international environment, primarily the rise in geopolitical tensions, the strengthening of protectionism, and the fragmentation of the global market. In line with estimates of leading relevant institutions, the Executive Board has taken into account that new protectionist measures could impact the international macroeconomic environment, trade flows and supply chains, with implications for inflation and economic activity, necessitating caution in the conduct of monetary policy. Caution is also needed due to uncertainties regarding the movements of global prices of energy and other primary commodities, as well as certain raw materials in the food industry, whose prices have recently reached record-high levels on global exchanges due to droughts in leading producer countries.
Consistent with the Executive Board’s announcements, y-o-y inflation continued to move within the target band, measuring 4.3% in December, the level around which it stabilised in H2 2024. The declining y-o-y inflation trajectory in 2024 is mainly owed to the slowdown in food and energy price growth. A decrease in core inflation (CPI excluding food, energy, alcohol and cigarettes) was underpinned by NBS monetary policy measures, lower imported inflation and inflation expectations, as well as the gradual waning of external shock effects. Nevertheless, same as in other countries of the region, including the euro area, core inflation trended above the headline in H2 2024, measuring 5.3% y-o-y in December. Going forward, inflation should continue to move within the target bounds, trending early this year at a similar level as at end-2024 and slowing down around mid-2025. The slowdown will be mainly prompted by the still tight monetary conditions and lower imported inflation, as well as the onset of a new agricultural season, assumed to be average. Core inflation is expected to also lose steam going forward and gradually come closer to the headline.
Considering current economic developments, the Executive Board highlighted the fact that inflation in Serbia subsided against the background of sustained positive developments in the real sector. According to the SORS estimate, GDP growth measured 3.3% in Q4 and 3.9% in 2024 as a whole. At the annual level, better performance of industry, notably manufacturing, as well as of services, has more than compensated for the negative effects of drought on agricultural production. A positive contribution also stemmed from construction, owing primarily to the implementation of infrastructure projects planned under the Serbia Expo 2027 programme. Economic growth is expected to step up further in 2025, supported by increased domestic demand, though not to the extent that could threaten medium-term price stability. It should be noted that private consumption growth will be based on higher disposable income and positive trends in the labour market, and investment growth on increased corporate profitability in prior years, the expected continued FDI inflow, planned government capital expenditure directed in transport, energy and utility infrastructure, as well as more favourable financial conditions thanks to the NBS and ECB monetary policy easing thus far.
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.
At today’s meeting, the Executive Board adopted the February Inflation Report with the latest macroeconomic projections that will be presented to the public in more detail at the press conference on 19 February, along with additional explanations of monetary policy decisions.
The next rate-setting meeting where economic developments will be considered is scheduled for 13 March.
Governor's Office
