Bank of Serbia keeps key rate at 6%

Bank of Serbia keeps key rate at 6%
By bne IntelliNews May 11, 2023

The Serbian central bank said on May 11 it decided to keep the key interest rate unchanged at 6% due to the country's resilient economic performance in the face of external challenges.

The rates on deposit and lending facilities were also kept unchanged, at 4.75% and 7.25%, respectively.

The decision reflects the gradual easing of cost-push pressures from the international environment and the stabilisation of global supply chains. Additionally, the decline in global energy prices, particularly electricity and natural gas, is expected to contribute to a slowdown in domestic inflation in the near future, the central bank said.

Serbia's inflation rate remained at approximately 16% y/y in the first quarter of the year. This was largely driven by the pass-through effect of high cost-push pressures from the previous period.

Food prices and expected adjustments of administered prices played a significant role in these inflationary movements, while lower petroleum product prices had a counteracting effect.

Core inflation, which excludes food, energy, alcohol, and cigarettes, stayed significantly lower than headline inflation, standing at around 11% year-on-year in the first quarter. The stability of the dinar's exchange rate against the euro supported this trend.

By the end of 2023, it is anticipated to be half of the March level, returning within the target tolerance band by mid-2024.

Factors contributing to this downward trend include monetary tightening, the diminishing impact of global factors that drove energy and food price growth, and a slowdown in imported inflation.