NBS keeps key policy rate at 6.5 pct

BELGRADE - The National Bank of Serbia (NBS) decided on Thursday to keep the key policy rate at 6.5 pct.

The deposit and lending facilities rates were also kept on hold at 5.25 pct and 7.75 pct, respectively, the NBS said in a statement.

"In making such decision, the Executive Board was guided by the continued easing of global inflationary pressures, which should lead to a more significant fall in imported inflation. At the same time, the Executive Board expects inflation at home to remain on the downward path and return within the target tolerance band over the monetary policy horizon.

When making the decision, the Board also relied on the fact that monetary conditions were tightened in the previous period and that the full effects of the implemented measures are yet to play out. The Board does not exclude the possibility of a further monetary tightening should that be deemed necessary," it said.

"The pass-through of the hitherto key policy rate hikes onto the rates in the markets of money, loans and savings signals the efficiency of the monetary policy transmission mechanism through the interest rate channel.

The weakening of global cost-push pressures has continued, mostly on account of declining global prices of energy and primary commodities. Coupled with the resolution of halts in global value chains, this is helping to drive global inflation down, however, its current levels are still relatively high, which can lead to a further monetary policy tightening in some countries, notably in the euro area. Globally, core inflation is showing signs of resilience and is retreating more slowly than headline inflation, under the impact of elevated inflation expectations, further wage increases, record low unemployment rates, and high corporate profit margins. Against such backdrop, many central banks, primarily in developed countries, continued to lift their interest rates, though at a slower pace than in 2022," the central bank said.

"The NBS Executive Board is also aware of the fact that the anticipated global growth during this and the following year is below the long-term average due to stricter conditions in the international financial market, structural changes caused by the pandemic, low investments and increased public debt.

The continuity of Serbia’s economic growth needs to be secured in conditions of a global economic slowdown, notably manufacturing in the euro area, our key trade partner. Nevertheless, the Executive Board underlines that a cautious approach to monetary policy conduct is still mandated due to the prolonged geopolitical tensions and persistent - though abated - risks in terms of energy prices and availability going forward, and the global prices of primary commodities," it also said.