07/11/2024
At its meeting today, the NBS Executive Board voted to keep the key policy rate at 5.75%, as well as the rates on deposit and lending facilities: 4.5% and 7.0%, respectively.
In making the decision, the Board highlighted that the key policy rate has been cut by 75 bp in total since June and that the effects of past monetary policy easing will play out in the coming period as well. As underscored by the Board, although inflation has returned within the target tolerance band (3±1.5%) and continues to move therein, it is necessary to continue to pursue a cautious and restrictive monetary policy given somewhat greater resilience of inflationary pressures – notably core inflation, and in light of the unpredictable developments in the international environment, mounting geopolitical risks and their impact on global prices of energy and other primary commodities, including other macroeconomic indicators. In the past two months, the crude oil price moved between USD 70 and 80 per barrel, mainly under the impact of developments in the Middle East, while any significant increase in the global oil price was contained by solid oil inventories globally and the expected weakening of demand. Still, concerns remain that the escalation of the Middle East conflict may disrupt oil flows from this key export region and push up global oil prices going forward. This may reflect on global inflation and the pace of monetary easing by central banks, as well as financing conditions in the international market.
Inflation in Serbia is within the bounds of the target tolerance band, slowing down to 4.2% y-o-y in September. Its movements are in line with the trajectory projected by the NBS, though vegetable and fruit price growth was higher than expected due to the drought; however, this was offset by the fall in the prices of petroleum products amid the previously contracted global oil price. As in countries of the region, core inflation is higher than headline, equalling slightly above 5.0% y-o-y. Going forward, inflation should remain within the target tolerance band, mostly owing to the still tight monetary conditions, lower imported inflation and inflation expectations. Still, the Executive Board stressed that a cautious monetary policy is mandated by the subdued supply of agricultural products in the domestic market due to adverse weather conditions and the summer drought.
When making monetary policy decisions, the Executive Board was aware of the fact that real sector indicators continue to post positive trends. According to SORS flash estimates, real y-o-y GDP growth in Q3 equalled 3.1%. Positive developments in the real sector were propped by lower inflation, real wage growth and decreased unemployment, as well as the ongoing investment cycle. Economic growth is unfolding on the back of lending activity growth, which picked up to 6.6% y-o-y in September thanks to more favourable interest rates amid monetary policy accommodation by the NBS and the ECB. After the October cuts, market participants expect the ECB to trim its interest rates further in the December meeting, and similar market expectations prevail with regard to today’s Fed meeting as well.
The Executive Board also took account of the fact that the improvement in Serbia’s credit rating to investment grade by Standard & Poor’s will contribute to a lower country risk premium and more favourable financing conditions, supporting a further rise in income disposable for investment and consumption and, by extension, to economic growth.
The NBS Executive Board will continue to follow closely and analyse developments in the domestic and international markets and make monetary policy decisions on a meeting-to-meeting basis depending on the assessment of incoming data, the outlook for inflation and its key factors, and the effects of past monetary policy measures. In making its decisions, the Board will remain mindful of the preservation of financial stability and favourable growth prospects.
At today’s meeting, the Executive Board adopted the November Inflation Report with the latest macroeconomic projections that will be presented to the public in more detail at the press conference on 13 November, along with additional explanations of monetary policy decisions.
The next rate-setting meeting will take place on 12 December.
Governor’s Office
