The Executive Board of the National Bank of Serbia (NBS) decided in session to keep the reference interest rate unchanged at 5.75%. Similarly, the deposit interest rate remains at 4.5%, and the credit easing rate remains at 7.0%, as announced by the NBS.
The Executive Board emphasized that despite a significant reduction in inflation and its movement within target boundaries, it is necessary to continue with cautious monetary policy. Domestic inflation is heavily influenced by global commodity and financial market trends, which are currently characterized by high volatility due to uncertainties regarding the trade policies of leading global economies. The prevailing assessments suggest that global inflation will likely decrease more slowly than expected, while economic growth will be weaker due to disruptions in trade flows, production chains, and weaknesses in key growth drivers such as foreign trade, investments, and consumption, the statement said.
Although the expected slower growth of the global economy has contributed to the decline in global prices for primary products, particularly crude oil, caution is still required, as higher production costs in the context of rising tariffs could lead to inflationary pressures.
The Executive Board also took into account market participants’ expectations that the European Central Bank will likely continue easing its monetary policy, which should result in more favorable conditions for euro-denominated borrowing in Serbia. According to current forecasts, it is assessed that the Federal Reserve System will be more cautious in easing its monetary policy, as it is expected to face increased inflationary pressures due to tariffs, which could impact capital flows to emerging countries. Additionally, the prices of some food raw materials, such as cocoa and coffee, which have recently reached record levels, as well as last year’s poor domestic agricultural season, will continue to affect food prices, although the situation is expected to stabilize with the arrival of the new agricultural season.
Inflation during the first quarter of 2024, in line with NBS expectations, was around the upper limit of the permissible deviation from the target, and in March it stood at 4.4%. Compared to the end of 2024, March saw a decrease in the contribution of energy and service prices by 0.1 percentage points each, while food prices contributed an increase of 0.3 percentage points, largely due to the effect of still high global cocoa and coffee prices. A gradual easing of price pressures is indicated by core inflation, which decreased to 5.1% in March, its lowest level since July 2024.
The Executive Board, as stated by the NBS, expects inflation to continue moving within the target range, with a slowdown expected in the second half of the year, bringing it closer to the central target value of 3.0%. This is mainly expected due to continued restrictive effects of monetary policy, the arrival of the new agricultural season (assuming it is average), and expected low oil prices in line with futures markets.
The reduction in domestic inflation will also be supported by lower import inflation and the expected movement of real wages in line with productivity growth, which should contribute to further easing of core inflation and its convergence with overall inflation.
Regarding developments in the real sector, according to the first estimate by the Republic Statistical Office, the gross domestic product in the first quarter of this year grew by 2.0%. A lower-than-expected growth rate was observed in both the manufacturing and services sectors, which the Executive Board attributes to low external demand, issues in the European automotive industry, and increased risk aversion globally, as well as domestic market constraints due to blockades and protests that reduced consumption and investments.
The Executive Board expects economic activity to accelerate in the second half of the year, mainly driven by supply-side factors, particularly planned production growth in the automotive industry, activation of new capacities in energy, and the realization of infrastructure projects under the “Serbia Expo 2027” program.
Support for economic growth is also coming from the growth in credit activity toward the business sector and households, which increased by around 10.0%, a result of the previous easing of monetary policy by the NBS and the European Central Bank.
The NBS Executive Board will continue to monitor and analyze trends in both domestic and international markets and will make decisions regarding future monetary policy on a session-by-session basis, depending on incoming data, inflation trends and key factors, and the estimated effects of the implemented monetary measures.
At the same time, the Executive Board will ensure the preservation of financial stability and favorable prospects for economic growth when making decisions.
In today’s session, the Executive Board adopted the May Inflation Report with updated macroeconomic projections, which will be presented to the public at a press conference on May 14, where the decisions on monetary policy will also be further explained.
The next session of the Executive Board, where economic developments will be reviewed and a decision on the reference interest rate will be made, is scheduled for June 12, according to Tanjug.
