The Serbian central bank announced on August 10 that it kept the key interest rate at 6.5% (chart) due to the ongoing alleviation of worldwide inflationary forces. This course of action is anticipated to help facilitate a more pronounced reduction in imported inflation.

The rates on deposit and lending facilities were also kept at 5.25% and 7.75%, respectively.

The year-on-year inflation in Serbia has been consistently decreasing since April. This deceleration in inflation can be primarily attributed to reduced costs of processed food and energy, as well as a decrease in the underlying inflation rate, which reached a single-digit level in June, the central bank said.

Projections suggest a further decrease in the yearly inflation rate in July, potentially reaching approximately 12.5%. This projection assumes the absence of a monthly upsurge in consumer prices.

The National Bank of Serbia (NBS) executive board foresees that the downward trend in year-on-year inflation will persist, with a notable reduction throughout the remainder of the year. This shift will be noticeable as the calculations for year-on-year inflation will no longer include the price hikes in food and energy that occurred in the latter half of 2022.

The GDP growth gained momentum during the second quarter of 2023, registering a year-on-year increase of 1.7%. The principal factor behind this growth can be attributed to the resurgence of the construction sector, coupled with heightened activity across service industries, propelled by ongoing increments in employment rates and wages.

Additionally, agricultural growth is evident despite challenges posed by heavy rainfall and localised damages this year. This stands in contrast to the previous year marked by drought, signifying an improvement in this year's agricultural season.

The revival of electricity production has further contributed to the positive trajectory, counterbalancing the relatively diminished manufacturing activity, which mirrors the subdued production levels of Serbian trading partners, particularly Germany.

The next session of the central bank’s executive board is scheduled for September 7.