National Bank of Serbia : No Change in Key Policy Rate

No Change in Key Policy Rate

At its meeting today, the NBS Executive Board voted to keep the key policy rate unchanged at 2.25%.

In making the decision, the Executive Board was guided by the outlook for inflation and other macroeconomic indicators from the domestic and international environment, and past monetary policy easing. Inflation is low and stable for the sixth year in a row. According to the Statistical Office's estimate, it measured 1.9% y-o-y in December. Inflationary pressures are expected to remain subdued in the coming period as well. The Executive Board expects that y-o-y inflation will move around the lower bound of the target tolerance band until mid-2020 and that it will gradually approach the target midpoint thereafter under the impact of rising aggregate demand. Low inflationary pressures are also indicated by the inflation expectations of financial and corporate sectors for both one and two years ahead which are anchored within the NBS target band.

Caution in monetary policy conduct is still mandated, mainly due to developments in the international financial and commodity markets. The ECB launched a new monetary stimulus package in November, while the Fed, after the October rate cut, will most likely keep its monetary policy unchanged for some time yet. Movements in the global prices of oil and primary agricultural commodities are also uncertain, given the intricate impact of numerous factors on the demand and supply side.

The Executive Board underlined that the resilience of our economy to potential adverse effects from the international environment increased owing to the full coordination of economic policy measures, resulting in sustainable, robust growth of economic activity and favourable macroeconomic outlook, as confirmed by the country's credit rating upgrade. GDP growth in 2019 exceeded the initial projections and, according to the Statistical Office's preliminary estimate, measured 4.0%. The Executive Board emphasized the significance of the 14.2% investment growth in 2019 which is attributable to further implementation of infrastructure projects, improved business environment, as well as favourable sources of funding arising from the NBS's past monetary policy easing. Household consumption also increased, mostly owing to positive labour market developments, higher living standard of citizens and lower costs of borrowing. Positive labour market trends are best illustrated by data about the real wage growth of 8.5% in 2019, with the unemployment rate dropping to single digits. As in the past two years, public finances were in surplus in 2019, while a record-high net FDI inflow for the fifth consecutive year fully covered the current account deficit. A high level of the country's FX reserves is another guarantee of resilience to potential shocks from the international environment.

The next rate-setting meeting will be held on 13 February.

Governor's Office