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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 at 2.25%.

In making such decision, the Executive Board was guided primarily by the expected movement in inflation and other macroeconomic indicators from the domestic and international environment going forward, and past monetary policy easing. Inflation has been firmly under NBS control for the seventh year in a row. In December 2019, it equalled 1.9% y-o-y. Low inflationary pressures are expected in the period ahead as well. The Executive Board expects y-o-y inflation to move around the lower bound of the target tolerance band until mid-2020 and gradually approach the target midpoint thereafter, on account of the low base effect for vegetable prices in the short run and rising aggregate demand in the medium run. That inflationary pressures are low is also indicated by inflation expectations, which have been within the NBS target tolerance band both for one and two years ahead.

Caution is still mandated in the conduct of monetary policy, mainly because of international developments. Future conditions in the international financial market will be largely determined by the degree of the Fed and ECB’s monetary policy accommodation, and its deviation from market expectations. There is also persisting uncertainty as to the movement of prices of oil and primary agricultural commodities in the global market. The global oil price was extremely volatile in recent months, reflecting the impact of numerous factors on both the supply and demand side. 

The NBS Executive Board underlines that the resilience of our economy to potential negative effects from the international environment has increased, thanks to the full coordination of economic policy measures, resulting in strong and sustainable growth of economic activity and a favourable macroeconomic outlook. GDP growth in 2019 exceeded the initial forecasts, owing to the acceleration in the second half of the year, sparked by the positive impact of domestic factors which compensated for the lower external demand. Particularly important was the growth in investment, supported by further implementation of infrastructure projects, improvement in the business environment, and favourable sources of financing resulting also from the NBS’s past monetary policy easing. Household consumption also picked up, primarily owing to positive labour market developments, higher living standards and lower costs of borrowing. The fiscal result in 2019 was better than planned, which, in addition to providing strong support to economic growth, also contributes to the further reduction in the share of public debt in GDP. The highest net FDI inflow on record fully covered the current account deficit of the balance of payments. Another warranty of the Serbian economy’s resilience to potential shocks from the international environment is the high and adequate level of FX reserves.

At today’s meeting, the Executive Board adopted the February Inflation Report. The Report and a detailed account of monetary policy decisions and underlying macroeconomic trends will be presented to the public on 19 February.

The next rate-setting meeting will take place on 12 March.

Governor's Office