The National Bank of Serbia (NBS) announced on June 10 that it would keep its key rate at 1%.

The SNB said its monetary policy priority will be to ensure price and financial stability, while supporting faster growth of the Serbian economy, employment and exports, as well as fostering a healthy environment. favorable investment.

“By keeping the rate on hold, the board had in mind that movements in the international environment still depend largely on the evolution of the pandemic,” the NBS said.

“Although the outlook for global growth is better than expected, the recovery will be uneven across countries and will largely depend on vaccine deployment and economic policy support.”

The bank noted that the European Central Bank (ECB) has yet to ease its stimulus measures, while the US FED has also not raised interest rates.

Uncertainty persists in global commodity markets, including those for oil, primary agricultural commodities and food, but no further major price growth is expected, NBS said in a statement on its website. Internet.

As assessed by the SNB Board of Directors, the effects of past monetary and fiscal measures can also be expected in the future, helping to maintain favorable financing conditions for businesses and households and support their disposable income.

A boost will also come from this year’s third stimulus package, worth around 4.3% of GDP, the SNB said in a statement posted on its website.

The board highlighted the strong GDP growth since the start of the year which has exceeded expectations, but also preliminary estimates – according to data from the statistics office, it amounted to 1.7 % year-on-year in the first quarter, which is higher than the preliminary estimate. by 1.2%.

On the output side, robust growth was driven mainly by construction and industry, and on the expenditure side, fixed investment and net exports.

The remarkably high year-on-year growth rates shown by industrial production (33.9%), exports and imports of raw materials (73.2% and 63.6%, respectively) and indicators of the service sector in April are partly attributable to the low base of April 2020, when economic conditions the effects of the pandemic were at their highest level in Serbia and in the world, but also to the continuation of the positive trends since the beginning of the year, because these indicators also recorded monthly increases.

The SNB Board of Directors expects economic growth to continue, in large part thanks to coordinated monetary and fiscal policy measures that have preserved investment and consumer confidence and supported fixed and market investment. growth in consumption.

Serbia’s accelerated recovery will also be supported by the progress of the immunization process which allows the resumption of many activities in the service sector. “There is no doubt that external demand will recover, leading to an increase in our exports which will continue to be diversified by geography and by product,” added the SNB.

“All of this, along with the planned increase in government investment spending on infrastructure projects, will drive GDP growth in 2021 as a whole to 6% or even more. “

This is in line with the forecast recently expressed by Prime Minister Ana Brnabic, although the latest World Bank projection is a bit more modest at 5%.

Commenting on inflation, the SNB said the lack of seasonal growth in vegetable prices at the start of the year was offset in April. Coupled with the weak base effect of petroleum product prices, this pushed inflation in April to 2.8% yoy. The board expects a slightly higher rate of inflation in May.

However, this rise in inflation is temporary and mainly reflects the low 2020 base, especially for petroleum products, which is also the case in most other countries due to the collapse in world oil prices linked to the pandemic from last year, the NBS said.

Weak core inflation of 1.8% signals the absence of major inflationary pressures on the demand side and the central bank board expects its stable movement around the current level to persist over the course of the year. of the coming period. Maintaining exchange rate stability “remains an important driver of low and stable inflation, as do entrenched inflation expectations of financial sectors and businesses, which confirm the credibility of monetary policy,” according to the report.