The Executive Board of the National Bank of Serbia (NBS) has decided to keep the reference interest rate at 5.75 percent, while also maintaining interest rates on deposit (4.5 percent) and credit facilities (7 percent) unchanged. The decision was announced by the NBS, which also noted that since June, the reference interest rate has been reduced by a total of 75 basis points, with the effects of previous monetary policy easing expected to continue in the coming period.
The Executive Board emphasized that despite inflation returning within the target range and remaining stable, a prudent monetary policy must still be maintained, given the ongoing uncertainties in the international environment. Geopolitical tensions and their potential impact on macroeconomic trends are a key concern.
The NBS acknowledged the stabilization of global crude oil prices since mid-October, primarily due to weaker oil demand, good stock levels, and increased production in the U.S. However, uncertainty regarding future oil price movements remains a significant factor to monitor.
Inflation in Serbia is currently within the target range of 3 percent, plus or minus 1.5 percent. In October, inflation slightly accelerated to 4.5 percent from 4.3 percent in September, largely due to higher vegetable prices caused by drought. The drought also reduced the supply of agricultural products, which remains a concern for monetary policy.
Core inflation in Serbia, similar to regional trends, is higher than overall inflation and slightly accelerated to 5.5 percent in October. However, the NBS expects inflation to continue within the target range due to restrictive monetary conditions and lower import inflation. Core inflation is also expected to gradually slow and align more closely with total inflation in the coming months.
In making its decision, the Executive Board also took into account positive trends in the real sector. Preliminary data from the Republic Institute of Statistics confirmed a 3.1 percent year-on-year GDP growth in the third quarter, with an overall 4 percent increase in GDP since the start of the year. Industrial production grew by 3.3 percent year-on-year between January and October 2024, driven by higher production in the mining and processing sectors, though energy sector output was reduced due to drought-related conditions.
Domestic demand has been supported by real wage growth, a decrease in unemployment to 8.1 percent (according to the Labor Force Survey for the third quarter of 2024), and ongoing investments driven by foreign direct inflows and state capital expenditures. The NBS also noted that favorable financing conditions, resulting from the easing of monetary policies by the NBS and the European Central Bank, have contributed to a 7.2 percent year-on-year increase in credit activity as of October.
The improved financing conditions are partly due to Serbia’s credit rating upgrade to investment grade by Standard & Poor’s, which is expected to further stimulate investments and consumption, contributing to continued economic growth.
However, the recovery of demand from Serbia’s leading trade partners remains slow. Gradual acceleration in demand is expected in the coming period, which, alongside investments in infrastructure projects such as the “Leap into the Future – Serbia Expo 2027” program, will help accelerate economic activity growth. The NBS forecasts that Serbia’s economic growth will rise from 3.8 percent this year to a range of 4 to 5 percent over the next two years.
The next meeting of the Executive Board, where a decision on the reference interest rate will be made, is scheduled for January 10, 2025.
