At today’s session, the Executive Board of the National Bank of Serbia decided to keep the reference interest rate at the level of 1%. In making such a decision, the Executive Board primarily had in mind that the effects of the adopted monetary and fiscal measures can be expected in the coming period and that 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 the indicators of economic activity since the beginning of this year are above expectations – according to the Republic Bureau of Statistics, the growth of gross domestic product in the second quarter compared to the same period last year was 13.4% and is a result of continued positive trends in our economy, but also last year’s low bases, when epidemiological measures were the strictest.
– At the quarterly level, the growth of the gross domestic product, according to our estimate, amounted to 1.2%, after excluding the effects of seasonal factors. Such a result was contributed by the improvement of the epidemiological situation in the world and in our country, the effects of monetary and fiscal incentives on the domestic market, as well as the continuation of the implementation of infrastructure projects. Observed from the production side, the biggest positive contribution to growth in the second quarter was given by the service sector, which was most affected by the pandemic last year, but a significant contribution, as in the previous quarter, was given by the processing industry and construction.
Considering the development of inflation, the Executive Board emphasized that since April it has been around the central value of the target (3 ± 1.5%). As in the case of other countries in the region, the higher level of year-on-year inflation compared to the previous quarter is predominantly a consequence of the low base from the same period last year in oil prices, as well as higher cost pressures due to rising world prices of oil and other primary products.
– At the same time, we point out that there are no significant inflationary pressures from the demand side. The absence of significant inflationary pressures is indicated by still low and stable core inflation (around 2%), as well as short-term and medium-term inflation expectations, which in the case of the financial sector are around the central value of the target, and in the case of the economy are lower. The Executive Board expects that inflation will continue to move within the target range in the coming period – it is explained.
Although developments in the international environment still largely depend on the course of the pandemic, the recovery of the world economy is accelerating, thanks to vaccination of the population and the gradual abolition of epidemiological measures, with further application of fiscal and monetary incentives in many countries.
They add that the risks to the growth of the global economy are still new strains of the virus, as well as occasional delays in supply chains and imbalances in the labor market, because they increase production costs.
– The growth of our most important economic partner, the euro zone, has been accelerating since April, which is why its projections for this year and next have been revised upwards. 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 has not changed its monetary policy for now, but it has noted the progress in achieving its goals, which it will continue to assess at the next meetings. Global financial liquidity remains extremely high, which has a positive effect on capital flows to emerging countries, including Serbia. On the other hand, uncertainty is still present on the world commodity market, primarily in terms of the movement of the world oil price, which in July was over 15% above the level before the pandemic, ie. average for 2019. The world prices of other primary products are at a much higher level, as well as the world prices of food – it is stated in the announcement.
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 National Bank of Serbia will continue to carefully monitor the trends and impact of key factors from the domestic and international environment on inflation, financial stability and speed of economic recovery and to adjust its measures accordingly in the interest of our economy and citizens.
At today’s session, the Executive Board adopted the August Inflation Report with new macroeconomic projections, which will be presented in more detail to the public at a press conference on August 18.
The next session of the Executive Board, at which the decision on the reference interest rate will be made, will be held on September 9, 2021, eKapija reports.
