NBS keeps key policy rate on hold at 5.75 pct

BELGRADE - The National Bank of Serbia (NBS) Executive Board decided on Thursday to keep the key policy rate on hold at 5.75 pct, and the deposit (4.5 pct) and lending facility (7.0 pct) rates remained unchanged as well.

"The Board made the decision primarily in view of the achieved and expected inflation, as well as factors from the domestic and international environment affecting its movements. Having slowed to 3.8 pct in May, y-o-y headline inflation in Serbia picked up to 4.6 pct in June and 4.9 pct in July, mostly due to the impact of adverse weather on growth in food prices (notably unprocessed food) which was pronounced at the start of this year’s agricultural season," the NBS said in a statement.

"Thus the 8.1 pct y-o-y growth in the prices of food and non-alcoholic beverages in July accounted for slightly more than a half of headline inflation. Core inflation (CPI excluding food, energy, alcohol and cigarette prices) remained unchanged in July relative to June and measured 4.7 pct y-o-y – it was below headline inflation for the first time since April 2024.

As for inflation movements going forward, the Executive Board expects to see a decrease in consumer prices (especially food prices) as a result of the Serbian Government’s Decree on special conditions for trade in certain types of goods, capping wholesale and retail margins at 20 pct. Accordingly, the Board expects a significant slowdown in y-o-y inflation in September, and thereafter its relatively stable movement within the target tolerance band until the end of the year. The following year, inflationary pressures should subside further on account of lower cost-push pressures from the international environment and the effects of the dollar’s weakening against the euro, as well as the still tight monetary policy of the National Bank of Serbia. The arrival of the new agricultural season should result in inflationary pressures receding further in the coming year, while the low base from September this year will act in the opposite direction due to the adoption of the Decree.

In explaining its decision, the Executive Board emphasised that caution is necessary in monetary policy conduct. Though less intense than a few months ago, uncertainty in the international environment remains pronounced, primarily due to the still uncertain future trade policies of leading world economies and geopolitical tensions. The tariff agreement between the USA and the EU has eliminated some of the risk, while the deadline for negotiations with China has been extended by another 90 days. Moreover, geopolitical tensions continue to pose substantial upward risk to global prices of oil and natural gas, though these prices subsided after the declaration of ceasefire in the Middle East and the start of negotiations between Russia and Ukraine," the central bank also said.