Serbian central bank still optimistic on economic growth

According to a statement by the Central bank (NBS), such decisions were made as inflationary pressures in the global and domestic markets continued to be stronger and more persistent than anticipated, calling for additional monetary tightening to contain second-round effects on inflation expectations and a further rise in inflation. [Shutterstock/BalkansCat]

The Serbian central bank on Thursday raised the key interest rate by 50 bp to 2%, while the Executive Board decided to increase the deposit and lending facilities rates by 50 bp each, to 1% and 3%, respectively – showing that the central bank remains optimistic on economic growth.

According to a statement by the Central bank (NBS), such decisions were made as inflationary pressures in the global and domestic markets continued to be stronger and more persistent than anticipated, calling for additional monetary tightening to contain second-round effects on inflation expectations and a further rise in inflation.

The Executive Board noted that developments in the international market in recent months have been marked by growing geopolitical tensions and the outbreak of the conflict in Ukraine, which deepened the global energy crisis, drove higher prices of primary agricultural commodities and industrial raw materials, and put further strains on international supply chains.

As in most other countries, inflation in Serbia stayed on the upward trajectory, amounting to 9.1% y-o-y in March, led mostly by the surging food and energy prices, the bank stated.

Consistent with the latest NBS projections, the Executive Board still expects inflation to fall in the second half of the year and most likely return within the target tolerance band in the second half of 2023.

Despite the adverse effects produced by the Ukraine conflict on developments in the international commodity and financial markets, most economic activity indicators at home continued to post dynamic growth in the first quarter.

According to the SORS estimate, GDP increased by 4.3% year-on-year, the executive board stated, adding that, despite a high level of uncertainty, it expects the Serbian economy to expand further, though GDP growth this year could be somewhat lower than previously expected.

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