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Serbia Watch: As widely expected, key rate still on hold at 5.75%
As was widely expected, the Executive Board of the National Bank of Serbia (NBS) sticks to its policy of maintaining the benchmark rate flat at 5.75%, as well as the deposit and credit facility rates, at 4.5% and 7%, respectively.
The Executive Board of the National Bank of Serbia (NBS) left the key rate unchanged (5.75%) at today’s meeting — in line with expectations. The Board evaluated that the current inflationary path stabilized with the CPI staying within the inflation target in February (4.5% yoy), nonetheless the inflationary risks pose a concern, supporting cautious monetary policy. On the one hand, the introduction of high tariffs and uncertain trade policies are worsening the prospects of the global economic growth, affecting the fall in prices of primary products, primarily oil, but on the other hand, they increase the risks that there could be a stoppage in global supply chains and a rise in global inflation.
The NBS did not change its forecast, confirming its expectation that inflation will be hovering around the upper band of the inflation target (3% +/- 1.5pp) in the coming months, while decelerating in H2 and converging to 3% later on in the projection horizon. The deceleration will be supported by the restrictive monetary policy, the assumption of an average upcoming agricultural season, expected decline in the oil derivatives, lower import prices and slowdown in the growth of real wages.
On the state of the economy, the NBS emphasizes that a certain slowdown in industry and the services sector is visible, while tourism and retail trade, according to the NBS, are still delivering growth, albeit only a moderate one. US tariff policies, the evolution of the car industry in the EU, the student blockades and protests on the domestic market, will be weighing on the postponement of the investments and consumption and possibly will affect the GDP growth. On the other hand, the NBS still views that economy acceleration will be supported by electric vehicles and car tire production, new energy capacities activation and EXPO 2027 in the quarters ahead. Furthermore, the ECB rate cutting policy is supporting the EUR-indexed lending in the country, while last year’s NBS rate cutting cycle added to a recovery in dinar lending.
Forwards guidance reiterates that monetary policy will be data dependent, dependent on both local and international data, in particular inflationary data, inflationary risks factors and effects of the previous monetary policy decisions. At the same time, the NBS will take care of maintaining the financial stability and favourable economic outlook.
Our base scenario is still in the game, with the assumption of a first rate cut (by -25bp) to be on the agenda in late Q2, possibly June.
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Ljiljana GRUBIC
Serbia Ljiljana joined Raiffeisen in 2001 as specialist for banking credit risk analyses, later enlarging its focus to municipalities and insurance credit risk analyses. In 2007 she moved to research team, becoming equity research analysts and afterwards in 2010 expanding its analytical skills to macro-economic analyses, becoming Economic Research Specialist. Her long experience in macro-economic analyses and forecasts was lauded by FocusEconomics awards, three years in a row, and her promotion to Chief Economist role. She is a speaker at corporate/investors conferences and roadshows organized within the Raiffeisen bank. In her spare time, she enjoys travelling and painting.
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