Serbia National Bank

National Bank of Serbia keeps benchmark rate unchanged


The National Bank of Serbia (NBS) kept its key policy rate at 1.0%  during its August meeting, as expected. The central bank’s Executive Board noted that economic activity indicators since the start of the year have exceeded expectations – according to a flash estimate by the the Statistical Office- GDP grew 13.4% y-o-y in Q2, as a result of continued positive trends in the economy.

The calculation of quarterly GDP for the second quarter of 2021 which is more detailed and compiled at lower levels of aggregation, will be published on August 31, 2021.

Meanwhile, inflation has been hovering around the target midpoint (3 ±1.5%) since April. The annual inflation rate remained unchanged at 3.30% in July from 3.30% in June.

Policymakers also said that there are no significant inflationary pressures on the demand side, as indicated by “persistently” low and stable core inflation (around 2%), as well as short-term and medium-term inflation expectations, which in the case of the financial sector are around the target midpoint, and in the case of the corporate sector are even lower.

The NBS noted that global economic recovery is picking up while  growth in Serbia’s key economic partner, the euro area, has been accelerating since April. Furthermore, global financial liquidity is still exceptionally high, which reflects positively on capital flows to emerging countries, Serbia included.

Benchmark Rate Serbia
(Source: National Bank of Serbia)

On the other hand, uncertainty is still present in the global commodities market, the NBS said, notably in terms of movements in the global price of oil, given that in July it was more than 15% above the pre-pandemic level, i.e. the average for 2019. The global prices of other primary commodities, including global food prices, were also at significantly higher levels, the acknowledged.

“The NBS will continue to carefully monitor the trends and impact of the key factors in the domestic and international environment on inflation, financial stability and the speed of economic recovery, and to adjust its measures accordingly, in the interest of our corporates and citizens” the bank said in a statement.

After robust growth of 4.2% in 2019, the COVID-19 crisis caused a recession of -1% last year in the Balkan country. The fiscal deficit increased significantly in 2020 and reached an estimated 8.1% of GDP, primarily due to the large fiscal stimulus program, according to the World Bank.

More positively, the European Bank for Reconstruction and Development (EBRD) sees Serbia’s economy increasing by 6% this year.

On the banking front, Serbia is with four financial institutions less than last year.

At the end of 2020, the takeover of Komercijalna banka by NLB was completed, in April the merger of OTP banka with Vojvodjanska banka was completed, whereas MTS bank merged with Poštanska štedionica Bank.

A few days ago, Credit Agricole SA decided to accept the offer of Raiffeisen Bank and signed an agreement on the sale of Credit Agricole Serbia and Credit Agricole Serbia Leasing with a local branch of the Austrian Raiffeisen Bank International AG. New bank mergers will follow, in the coming months, Novosti wrote.

The next NBS rate-setting meeting is scheduled for September 9.