This week, the National Bank of Serbia (NBS) will decide whether to follow the European Central Bank (ECB) in reducing interest rates, a move that is widely anticipated by analysts.

The executive board of the NBS will convene on June 13 to determine the course of interest rates. Most analysts predict that Serbia’s monetary institution will mirror the ECB's recent decision and cut interest rates by 0.25 percentage points.

Serbia has been waiting for the major central banks to make a move before making any decisions. In May, the NBS executive board chose to maintain borrowing costs, keeping the reference interest rate steady at 6.5%, with deposit rates at 5.25% and credit facility rates at 7.75%. 

This week will also bring critical inflation data for May, set to be released by the Statistical Office (RZS) on June 12. The NBS has projected that inflation will fall within the target range this month. Earlier forecasts anticipated that inflation would return to around 4.5% by mid-year.

In April, year-on-year inflation remained stable at 5%, unchanged from March. The drivers of inflation shifted, with gas and services replacing food as the primary contributors.

Total inflation in April was significantly lower than its peak in March last year, when it was more than three times higher. This decline was due to slower food price growth, which, due to easing global cost pressures, fell below the overall inflation level and registered a year-on-year increase of 2.9% in April.

"Last week, the ECB cut interest rates by 25 basis points, paving the way for the Serbian central bank to begin monetary easing. Serbia made it clear that it was waiting for the major central banks to make a move before making any decisions," said a note from Erste emailed to bne IntelliNews.

"One day prior to the central bank meeting in Serbia, the headline inflation for May will be released. If it falls within the tolerance band around the inflation target, we may see an interest rate cut as a highly probable scenario at the upcoming meeting." 

NBS governor Jorgovanka Tabakovic noted that core inflation, a critical measure excluding volatile items such as food and energy, had decreased by 6.5 percentage points to 4.8% in April. This reduction is due to the previous tightening of monetary conditions and a decrease in imported inflation during the same period.