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Serbia Monetary Policy May 2021

Serbia: Central Bank stands pat in May

The Executive Board of the National Bank of Serbia held fire at its 13 May meeting, leaving the key policy rate unchanged at its all-time low of 1.00%. This marked the fifth consecutive hold after December’s 25 basis-point cut. In deliberating its decision, the Bank continued to stress the role of previous monetary and fiscal policy measures—including favorable financing conditions and a third fiscal stimulus package—in shoring up economic activity. Moreover, the Bank upgraded its GDP forecast for this year to 6.0% following a strong performance in Q1, suggesting further easing was not warranted. Turning to inflation, while price pressures have increased in recent months, the Board noted that the rise will be temporary, reflecting a low base effect from 2020. Meanwhile, core inflation remained low in April, signaling a lack of significant demand-side pressures. The Bank expects inflation to hover around its current levels ahead, supported by a relatively stable exchange rate and well-anchored inflation expectations, leaving it with room to continue its wait-and-see approach.

In its press release, the Bank reaffirmed its primary commitment to continue supporting price and financial stability, while fostering faster economic and employment growth. Moreover, it will continue to keep a close eye on external and internal developments affecting inflation and economic activity. Given the Bank’s well-anchored inflation expectations, monetary policy is likely to remain loose going forward. A majority of panelists expect the Bank to remain on hold this year, although some forecast a rise in the key policy rate.

The next meeting is scheduled for 10 June.

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