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National Bank of Serbia maintains key interest rates amid global economic pressures

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The Executive Board of the National Bank of Serbia decided at today’s session to maintain the key policy rate at 6.5%. The deposit and lending facility rates were also kept unchanged at 5.25% and 7.75%, respectively, according to a statement from the National Bank of Serbia (NBS).

The decision to keep the key policy rate unchanged for the eighth consecutive month was influenced primarily by the ongoing but still elevated global inflationary pressures and the current medium-term inflation projection. The central bank emphasizes that the return of inflation to the NBS target range is expected by mid-year, as outlined in the statement.

The decision takes into account the recent increases in the key policy rate and mandatory reserve requirements, with the effects of these measures expected to continue influencing inflation in the coming period. The transmission mechanism of monetary policy, as reflected in market interest rates, credit, and savings, along with the decline in inflation expectations in the financial sector and the economy for the next year, indicates the effectiveness of the monetary policy transmission mechanism, according to the NBS.

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The Executive Board considered the global inflation slowdown, approaching pre-pandemic levels due to weakening cost pressures, easing supply chain disruptions, and the effects of previous monetary policy tightening by central banks. Despite increased transportation costs and other logistical expenses due to geopolitical tensions and issues in the transport of goods through the Red Sea, there has been no significant impact on global oil prices, other energy prices, or primary products, nor on the inflation of Serbia’s key trading partners, partly due to lower global demand.

However, the NBS Executive Board emphasizes the need for caution in decision-making regarding monetary policy due to pronounced geopolitical tensions. Furthermore, global fragmentation could cause substantial losses in world production, including negative effects on major trading partners. In such conditions, expectations that leading central banks such as the Federal Reserve System and the European Central Bank could start easing monetary policy before mid-year are diminishing, as noted by the NBS.

Inflation in Serbia continued its declining trajectory at the beginning of this year, reaching 6.4% in January, according to the statement. The Executive Board expects further inflation reduction in the coming period, a return to the target range by mid-year, approaching the central target value by the end of the year, and stability around that level in the medium term. This outlook is attributed to the effects of previous monetary policy tightening, slowing import inflation, persistently low external demand, and expected further declines in inflation expectations.

The next session of the Executive Board, where a decision on the key policy rate will be made, is scheduled for April 11, 2024.

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