Key policy rate kept unchanged

At its meeting today, the NBS Executive Board voted to keep the key policy rate unchanged at 1.0%.

In making the above decision, the Executive Board was primarily aware that the effects of past monetary and fiscal policy measures are also to be expected in the period ahead, as well as that the third package of measures for corporates and citizens has been announced. This means that the monetary and fiscal policy measures will continue to exert a positive impact on financing conditions for corporates and households, and on their disposable income.

As stated by the Board, Serbia’s economic results since the start of the year are favourable even in conditions of the deteriorating global health situation and stepped-up containment measures, as indicated by the available monthly indicators of activity, foreign trade and labour market. Output growth in manufacturing is particularly emphasized, and was facilitated by the activation of new production capacities thanks to prior investments, the undertaken monetary and fiscal policy measures, as well as the gradual recovery of external demand. Besides agriculture, manufacturing is still at the forefront of our export activity, which remained diversified in terms of geography and production as a result of a strong inflow of FDI to Serbia in the previous years, notably to tradable sectors. Since May 2020, retail trade has continued to post positive trends, and with the successful vaccine roll-out, we expect to see recovery in other services sectors which are still considerably affected by the ongoing pandemic. Already in the months ahead, this should help GDP return to pre-crisis levels and then continue on a path of accelerated growth, which will be additionally facilitated by the announced new package of economic measures.

For the eighth year in a row, even in conditions of a pandemic, the NBS continues to deliver on its primary objective – keeping inflation low and stable. In accordance with the NBS’s expectations, y-o-y inflation returned within the target tolerance band in March and measured 1.8%. Core inflation was also at 1.8% and was unchanged relative to February. The Executive Board expects inflation to stay stable and low going forward, and to move in the lower half of the target tolerance band. The ensured relative stability of the exchange rate, as well as anchored inflation expectations of the financial and corporate sectors that attest to monetary policy credibility, remain an important pillar of low and stable inflation.

The Executive Board took into account that the global economy and its growth prospects remain under the impact of the pandemic, but also the encouraging fact that projections are being revised upward. Early in April, for the second time since the start of the year, the IMF revised upward the global economic growth forecast, anticipating the effects of additional fiscal measures taken by the world’s largest economies, as well as the impetus from vaccination to the global economic growth in the second part of the year. The euro area is also expected to post more robust growth, as well as Germany and Italy, our most important trade partners, which will reflect on domestic exports. The pace of the recovery of the global economy will determine the movements in the international financial market and capital flows towards emerging economies, including Serbia, which increases the importance of maintaining caution in monetary policy conduct. Caution is also warranted because of the uncertainties in the global commodity market, primarily those surrounding the rising trend of the prices of oil, primary agricultural commodities and food, which has been in place for some time already.

The Executive Board points out that the monetary policy will continue to prioritise price and financial stability, while supporting further growth of our economy and employment, as well as further growth in exports and favourable investment environment. The NBS will continue to carefully monitor movements and impact of the key factors in the domestic and international environment on inflation, financial stability and the pace of economic recovery and to adjust its measures accordingly, in the interest of our corporates and citizens.

The next rate-setting meeting will take place on 13 May 2021.

Governor’s Office