NBS keeps key policy rate on hold at 6.5 pct

BELGRADE - The National Bank of Serbia (NBS) Executive Board decided on Friday to keep the key policy rate on hold at 6.50 pct.

The rates on deposit (5.25 pct) and lending (7.75 pct) facilities also remained unchanged.

"The Board’s decision was motivated primarily by the medium-term inflation projection and the expected movement of key inflation factors, and by the still elevated, though subsiding, global inflationary pressures, and heightened uncertainty over the global prices of energy and other primary commodities.

Moreover, the effects of past monetary tightening have largely spilled over to the cost and volume of private sector borrowing, while financing conditions have stabilised since the key policy rate was raised last time, in July 2023," the NBS said in a statement.

"The Board also had in mind the continuing deceleration of global inflation, which is, however, still elevated, whilst the risks as to its further movement are increasingly balanced.

Most central banks are forecasting with increasing certainty that inflation in their respective countries will retreat within the target band in H2 2024 or H1 2025, owing to past monetary tightening, which has, in all probability, ended.

Despite higher core inflation amid tight labour markets, expectations prevail that the ECB will start trimming its key rates in June, which is likely to reflect on the gradual lowering of the price of euro-indexed borrowing in Serbia, whereas the Fed will probably defer this process for some time yet.

Caution in monetary policy conduct by the NBS is necessary due to the volatile movement of global prices of primary commodities, notably of oil, in an environment of pronounced geopolitical tensions, continued OPEC+ supply cuts, and a number of other factors," the central bank also said.