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Key Policy Rate Kept on Hold

At its meeting today, the NBS Executive Board voted to keep the key policy rate on hold, at 3.0%.

In making such decision, the Executive Board was guided by the expected movement in inflation and its underlying factors, and the effects of past monetary policy easing. After reaching this year’s low in April, inflation returned within the target tolerance band, in line with expectations, and touched 2.6% in August. The Executive Board expects that year-on-year inflation will continue to move within the target tolerance band in the next two years. In the medium run, it will be driven mainly by the gradual rise in aggregate demand. Both the financial and corporate sectors expect that the achieved price stability will be maintained in the coming period, as reflected in their inflation expectations anchored around the 3% target for both one and two years ahead.

The Serbian economy has been rising vigorously since the start of the year, at the highest rate in the past ten years, aided also by the past monetary policy easing of the NBS. As assessed by the Executive Board, economic growth will exceed 4% this year, with a significant contribution coming from investment, which will ensure the continuation of vibrant growth in manufacturing exports going forward. The investment upturn is also supported by favourable financing conditions and lending growth. Furthermore, the net FDI inflow, which comfortably covers the current account deficit, is contributing to a reduction in external imbalance in the medium term through the impact on export growth.

The Executive Board judges that caution in monetary policy conduct is still mandated, primarily because of developments abroad. Global oil price movements remain volatile, even though oil futures indicate the stabilisation of prices until the end of the year. Given the rise in global oil prices, inflation in the international environment is also somewhat higher this year. The expected further monetary policy tightening by the Fed and a wind-down of the QE programme by the ECB in the remainder of the year could affect capital flows to emerging markets. Besides, growing protectionism in international trade has dampened investor mood and stirred uncertainties in the international financial market. Nevertheless, the Executive Board points out that the resilience of our economy to potential negative effects from the international environment has increased, owing to improved macroeconomic fundamentals and overall prospects.

The next rate-setting meeting is scheduled for 8 November.

Governor’s Office