07/08/2025
At its meeting today, the NBS Executive Board voted to keep the key policy rate on hold, at 5.75%. It did not change the deposit (4.5%) and lending facility (7.0%) rates either.
When making the decision, the Executive Board took into account the fact that several factors together triggered accelerated growth in domestic prices of food, especially non-processed food, over the past months. This refers primarily to prices of some food inputs in the global market and adverse weather conditions so far in the year, together with depleted inventories of agricultural commodities from the previous year due to the last year’s drought. Petroleum product prices also increased in June, as the global oil price went up after the outbreak of the Middle East conflict. Mostly as a result of the above factors, headline y-o-y inflation in Serbia stepped up to 4.6% in June, after slowing to 3.8% in May. The NBS estimates that y-o-y inflation could continue moving around the upper bound of the target band (3±1.5%) until the end of the year and slow gradually in 2026.
In explaining its decision, the Executive Board emphasised that caution is necessary in monetary policy conduct. Though less intense, uncertainty in the international environment remains pronounced. This primarily pertains to future trade policies of leading world economies and geopolitical tensions. Though some countries reached tariff agreements with the USA, numerous issues still surround their implementation. Following declaration of ceasefire in the Middle East, the global prices of oil and natural gas went down. However, geopolitical tensions still pose a significant upside risk in this respect. The stance of leading central banks, the ECB and the Fed, was also cautious and they did not change their rates.
As estimated by the SORS, GDP growth in Q2 exhibited the same dynamics as in Q1 and amounted to 2% y-o-y, falling short of the NBS’s expectations. Dented investment and consumer confidence, as a consequence of unfavourable factors from the international environment, but also protests and blockades at home, had a greater impact on economic growth than initially anticipated. Similar to previous quarters, GDP growth, according to our estimate, was driven by the service sectors, followed by the manufacturing industry, where the effects of investments in the automobile industry are visible, while reduced activity in construction and energy worked in the opposite direction. However, the Executive Board expects that economic activity will gather pace in the remainder of the year, primarily driven by the ongoing acceleration of production in the automobile industry, as well as the implementation of infrastructure projects under the "Serbia Expo 2027" programme. In addition, the Executive Board assesses that monetary policy measures – the maintained relative stability of the exchange rate and more favourable credit financing conditions, which resulted in double-digit growth in lending to corporates and households (10.8% y-o-year in June) – provide support that enables the acceleration of economic growth.
The Executive Board will continue to follow and analyse developments in the domestic and international markets and make monetary policy decisions on a meeting-to-meeting basis depending on the incoming data, the outlook for inflation and its key factors, and the assessment of the effects of adopted monetary policy measures. In making its decisions, the Board will remain mindful of the preservation of financial stability and a favourable growth outlook.
At today’s meeting, the Executive Board adopted the August Inflation Report with the latest macroeconomic projections that will be presented to the public in more detail at the press conference on 13 August, along with additional explanations of monetary policy decisions.
The next rate-setting meeting where economic developments will be considered is scheduled for 11 September.
Governor’s Office
