The National Bank of Serbia (NBS) said on January 11 that its executive board decided to keep the key policy rate unchanged at 6.50% (chart). It also held the rates on deposit and lending facilities at 5.25% and 7.75% respectively.

The decision to keep the reference interest rate unchanged is based on the persistent reduction in global inflationary pressures and the established downward trend in domestic inflation, according to the central bank. The committee anticipates a return within the target band by mid-year. 

This decision follows recent adjustments in the reference interest rate and mandatory reserve rates.

In making the decision, the executive committee also took into consideration the ongoing easing of cost pressures and the reduction of inflation at the global level.

Despite acknowledging the global economy's slightly better-than-expected performance last year, the Executive Committee remains cautious about the anticipated slowdown in growth this year.

Geopolitical tensions and macroeconomic trends in China, impacting global trade and primary commodity prices, continue to pose uncertainties that warrant careful policy consideration, the central bank said.

On the other hand, domestically, the committee noted a substantial reduction in Serbia's annual inflation rate, which reached 7.6% in December, nearly half of the rate recorded at the end of the previous year.

This decline is attributed to a combination of effective monetary policy measures, global cost pressure relief, decreased import inflation and a successful agricultural season

Anticipating further decreases in inflation, the committee expects inflation will approach the central target value of 3% by the end of the year.

Data from the Statistical Office of Serbia align with the National Bank's projections, estimating a 2.5% growth in the gross domestic product (GDP) for 2023.

Across all production and service sectors, growth was evident, particularly in energy, agriculture and construction, driven by increased infrastructure project implementation.

Despite external demand slowing, the manufacturing industry exhibited resilience, achieving production and export growth.

Positive trends continued in the labour market, with ongoing employment growth, reduced unemployment and real wage growth. The average wage increased nominally by 15%, maintaining purchasing power.

Looking ahead, the executive committee anticipates a GDP growth acceleration in Serbia to reach between 3% and 4% in 2024. Personal consumption, an important growth factor, is expected to contribute without significantly escalating inflationary pressures.

Investments in fixed assets are also anticipated to enhance production potential, reflecting optimism in the country's economic outlook amidst evolving global uncertainties.