The National Bank of Serbia said on March 7 it decided to keep the reference interest rate steady at 6.50% (chart).

This marks the eighth consecutive month without any adjustments, reflecting the ongoing economic stability and a cautious approach towards global uncertainties.

The interest rates on deposits and credit facilities were also retained at their current levels of 5.25% and 7.75%, respectively, maintaining a consistent monetary policy stance.

The decision to maintain the reference interest rate was primarily influenced by the global economic landscape, characterised by declining but still elevated inflationary pressures.

The board considered the current medium-term inflation projection, foreseeing a return to the National Bank of Serbia's target range by the middle of the year.

Acknowledging the impact of previous monetary policy measures, including increases in the reference interest rate and mandatory reserve rates, the central bank expects these measures to continue affecting inflation in the coming period. The transmission mechanism of monetary policy has proven effective, impacting interest rates, loans and savings.

The global inflationary landscape is slowing down, approaching pre-pandemic levels, the central bank said. Factors such as weakened cost pressures, eased stagnation in supply chains, and the effects of previous central bank tightening contribute to this trend.

While geopolitical tensions and disruptions in transportation may impact certain costs, there has been no significant effect on global prices of key commodities or inflation in major trading partners.

Despite positive trends, the central bank called for caution due to pronounced geopolitical tensions. The potential for further global fragmentation poses risks to world production and could adversely affect major trading partners. Consequently, the anticipation of leading central banks easing monetary policies before the middle of the year is diminishing.

Inflation in Serbia has been on a downward trajectory, reaching 6.4% in January, according to the February medium-term projection.

The effects of tightened monetary conditions, along with factors such as weakened cost pressures and a high base for food prices, contributed to a further slowdown in inflation. The central bank anticipates a continued decrease in inflation, returning to target limits by mid-year, with further stabilisation around the central value in the medium term.