Key policy rate kept unchanged at 5.75%

At its latest session, the NBS Executive Board voted to keep the key policy rate at 5.75%. It also kept the deposit facility (4.5%) and lending facility (7.0%) rates unchanged, the central bank announced.

In making this decision, the Executive Board primarily took into account actual and expected inflation, as well as risks from the international environment that could affect its trajectory. Although, as pointed out, y-o-y inflation remained below the target midpoint during Q1 and amounted to 2.8% in March, the NBS Executive Board expects it to record a moderate increase in the period ahead, primarily due to a significant rise in global oil prices and, consequently, higher petroleum product prices in the domestic market.

Towards the end of the year, higher inflation will also be affected by the low base arising from the implementation of the Decree on Special Conditions for Trade in Certain Types of Goods, which led to a notable decline in inflation late last year. It is however added that, despite the increase in global prices of primary commodities and energy, the Board expects the rise in inflation to be temporary, with the peak in the current cycle likely to be recorded towards the end of this year and at the beginning of next.

As anticipated by the Executive Board, the expiry of the Decree in February this year did not lead to any major increase in trade margins or their return to pre-decree levels, as reflected in food prices, which in March were still lower than in the same period last year.

– Current global developments, notably the situation in the Middle East, could have a negative effect on container shipping prices, mineral fertilizers, value chains, investment and consumer confidence, as well as goods and capital flows. Also, as Serbia is a net energy importer, an increase in the global price of oil is directly mirrored by a rise in petroleum products in the local market, and can indirectly impact the prices of food, as well as of industrial products and services – the press release points out.

On the other hand, higher costs and the consequently lower disposable income of households have an adverse effect on economic growth prospects. The final effects of the global energy shock on domestic inflation and economic activity are difficult to estimate as they depend on the duration and intensity of the conflict.

– In such circumstances, the NBS continues to pursue a cautious monetary policy while maintaining relative stability of the exchange rate. If assessed that the increase in global oil prices is having more pronounced second-round effects on other prices through inflation expectations, the NBS will respond using all available instruments – the press release concludes.

Narodna banka Srbije Beograd

National Bank of Serbia

key policy rate