The National Bank of Serbia (NBS) has decided to maintain the reference interest rate at 5.75 percent for the fourth consecutive month. This decision comes as inflation in Serbia remains within the target range, though it is still closer to the upper limit. Meanwhile, inflation in the Eurozone has risen to 2.4 percent, with the European Central Bank (ECB) lowering its reference interest rate by 0.25 percentage points.
In an interview on RTS’s Morning Program, Nebojša Savić, Professor at the Faculty of Economics, Finance, and Administration, explained that predicting central bank decisions has become somewhat speculative recently, with analysts attempting to forecast these moves globally. According to Savić, such decisions are based on data and reflect different interests: those in debt wish for interest rates to fall, while savers prefer higher rates for better returns.
He emphasized that Serbia, like the rest of the world, has moved away from the era of high inflation, with inflation rates in the Eurozone now slightly over 2 percent and Serbia’s inflation remaining within target limits for several months. Savić pointed out that maintaining a downward inflation trend is crucial, despite challenges such as rising wages which can lead to higher prices in the market.
In response to whether this stabilization could lead to a drop in interest rates, Savić suggested that gradual reductions could occur but must be carefully managed to prevent a resurgence of inflation. He stressed the importance of being patient and cautious to avoid triggering inflationary pressures again.
The ECB’s interest rate cut vs. Serbia’s caution
Savić further explained that the differences in economic activity growth between Europe and Serbia influence the contrasting decisions. While Europe faces the need to lower interest rates to stimulate economic activity, Serbia, with one of the highest economic growth rates in Europe (3.9% in 2024), does not need to lower its rates to boost growth.
The professor also mentioned the impact of external factors, such as the rising prices of imported goods like cocoa and coffee, and food prices due to climate changes. These products, which have a significant impact on the standard of living, have experienced price hikes, affecting consumers’ purchasing power.
Agriculture and climate change
Savić highlighted that agriculture, particularly in Serbia, is vulnerable to climate change, citing the example of last year’s drought, which led to a sharp rise in the prices of fruits and vegetables. He stressed the need for better infrastructure and policies to manage such risks, pointing to the importance of learning from other countries’ experiences in handling water and irrigation systems.
Despite these challenges, Savić noted that Serbia has seen less influence from external factors on inflation in recent times. The external factor was once more than 70 percent during the Ukraine war, but the situation has since improved. He believes that patience is key to successfully managing inflation in Serbia.
In conclusion, Savić expressed hope that Serbia’s growth rate in 2025 could reach 4.5 percent, maintaining a positive trajectory despite global and domestic challenges.
