The Executive Board of the National Bank of Serbia (NBS) decided today to keep the reference interest rate at the level of one percent.
As stated, in making such a decision, the Executive Board had in mind that the effects of previously adopted monetary and fiscal measures, including the third package of economic measures to help the economy and citizens, of about 4.3 percent of gross domestic product, can be expected in the future. and that on that basis, the conditions for financing the economy and citizens will remain favorable, which contributes to the growth of disposable income.
The Executive Board pointed out that Serbia is one of the few economies that has already exceeded the pre-crisis level of economic activity in the first quarter of this year.
It is especially important, as it was assessed, that during the pandemic, as a result of coordinated measures of monetary and fiscal policy, production capacities and jobs were preserved, as well as business and consumer trust.
In line with that, as well as thanks to the successful implementation of the vaccination process, the Executive Board expects that the growth of investments in fixed funds and consumption will contribute the most to economic growth this year.
It was pointed out that it is certain that external demand will also recover, with further growth of Serbia’s exports, which will continue to be geographically and productively distributed, supported by a further strong inflow of foreign direct investments.
All this, as stated, along with the planned increase in capital expenditures of the state aimed at the realization of infrastructure projects, will ensure that the growth of gross domestic product at the level of the year reaches six percent, with the possibility of a higher growth rate.
In line with the expectations of the Executive Board, year-on-year inflation rose to 3.6 percent in May, which was the case in most other countries, primarily due to the low base from the previous year.
The low base, it was pointed out, is mostly related to the prices of oil derivatives, which in the first months after the outbreak of the pandemic, under the influence of lower world oil prices, recorded a strong decline.
In the coming months, the Executive Board expects inflation to move around the central value of the target of three percent, and after the cessation of temporary factors in the prices of petroleum products and food, inflation will slow down from the second quarter of next year.
The absence of significant inflationary pressures is indicated by the stable movement of core inflation, which amounted to two percent year-on-year in May.
Also, an important factor of low and stable inflation is the provided relative stability of the exchange rate, as well as the anchoring of inflation expectations of the financial sector and the economy, which confirms the credibility of monetary policy.
In deciding to keep the reference interest rate unchanged, the Executive Board had in mind that developments in the international environment are still largely dependent on the course of the pandemic.
Although the economic recovery is uneven across countries, with the risk of a slowdown due to the spread of new strains of the virus, the medium-term outlook for global economic growth is favorable thanks to the vaccination process.
Potential risks to global economic growth are also supply chain disruptions and labor market imbalances, as they increase production costs and lead to global concerns that inflationary pressures could rise.
Leading indicators of economic activity in the euro zone, Serbia’s most important trading partner, indicate that the recovery in the second quarter of this year is strong, driven by the growth of the processing industry, but also the service sector, the statement said.
The acceleration of the growth of the euro zone, as well as higher inflation since the beginning of this year, do not affect the decision of the European Central Bank to reduce the degree of expansion of monetary policy, because the factors of higher inflation are assessed as temporary.
Also, the Federal Reserve System believes that the trends in the American economy still do not require the withdrawal of central bank support measures.
The good prospects for the growth of the world economy and the announcement of the leading central banks that their interest rates will remain low in the coming period, have to some extent alleviated the uncertainty in the international financial market, so financing conditions for emerging countries remain favorable.
Uncertainty is still present on the world commodity market, primarily in terms of the movement of the world oil price, which increased by more than 45% in the first half of this year.
The growth of the world oil price was influenced by a strong growth of demand that exceeded the supply, limited by the decisions of the OPEC + countries.
The upward trend is also recorded in world prices of other primary products, as well as world food prices.
In the conditions of extreme uncertainty at the global level caused by the pandemic, it is reminded that the NBS has preserved price and financial stability for the eighth year in a row.
The Executive Board emphasizes that the priority of monetary policy will continue to be ensuring price and financial stability, with the support of the fastest growth of our economy and employment, further growth of the export sector, as well as a favorable investment environment.
The NBS will continue to closely monitor developments and the impact of key factors from the domestic and international environment on inflation, financial stability and the speed of economic recovery, and to adjust its measures accordingly in the interest of the economy and citizens.
The next session of the Executive Board, at which the decision on the reference interest rate will be made, will be held on August 12, Novi Magazin reports.
