Serbia's central bank kept its benchmark interest rate unchanged at 5.75% on July 9, saying inflation remains within its target range but uncertainty stemming from global geopolitical tensions and commodity prices warrants a cautious monetary policy stance.

The Executive Board of the National Bank of Serbia (NBS) also left the deposit rate unchanged at 4.5% and the lending facility rate at 7%.

The decision reflected current and expected inflation trends, as well as domestic and international risks that could affect price growth, the central bank said in a statement.

Annual inflation stood at 3.5% in May, remaining within the central bank's target range of 3% plus or minus 1.5 percentage points. The NBS said the pickup in inflation was largely driven by higher global oil prices, although government measures including lower fuel excise duties and the release of state fuel reserves helped cushion the impact on domestic prices.

Food price inflation has continued to ease, with prices rising 1.5% year-on-year in May. The central bank said good agricultural conditions and strong fruit and vegetable harvests could provide additional disinflationary pressure in the coming months.

The NBS reiterated that inflation is expected to slow from September before hovering around the upper end of its target range. However, it warned that higher global energy and commodity prices, together with imported inflation, could temporarily push inflation above the target ceiling late this year or early next year.

Assuming recent energy price shocks prove temporary and oil prices remain around current levels, inflation should return to the target range by mid-2027, the bank said.

The central bank said the conflict in the Middle East remained a key source of uncertainty for the global economy despite easing tensions following a ceasefire and a recent decline in oil prices. It added that geopolitical risks, developments in commodity and financial markets, trade relations and the policy decisions of major central banks would continue to be closely monitored.

The NBS said Serbia's economy had performed better than expected so far this year. Gross domestic product expanded by 3.2% year-on-year in the first quarter, slightly above the central bank's previous forecast, supported by services and agriculture.

Manufacturing recovered in April and May after disruptions earlier in the year linked to the operations of Serbia's oil company NIS, while retail trade and tourism also recorded solid growth.

The central bank said exports had remained resilient despite weaker demand from the European Union and neighbouring markets, supported by diversified production and export-oriented foreign investment.

It added that both domestic demand and net exports had contributed to economic growth this year, while preparations for the specialised Expo exhibition are expected to provide further support to activity.

Credit growth also remained strong, with lending to businesses and households rising 16.4% year-on-year in May.

The NBS said it would continue to pursue a prudent monetary policy while maintaining exchange rate stability, adding that it stood ready to use all available policy tools if higher energy prices triggered broader inflationary pressures through rising inflation expectations.

The central bank's next rate-setting meeting is scheduled for August 13.