Executive Board National Bank of Serbia he decided to reduce the reference interest rate by 25 basis points, to the level of 6,25 percent, as well as the rate on deposit facilities to 5,00 percent and the rate on credit facilities to 7,50 percent. Year-on-year inflation slowed down to 4,5 percent in May, which, in accordance with the projections of the central bank, returned to the limits of the target deviation, which is three plus, minus 1,5 percent.
As stated in the NBS announcement, when making that decision, the Executive Board had in mind the multi-month downward trajectory of domestic inflation and its return to the target limits in May, in accordance with the projections of the National Bank of Serbia, as well as the expected movement of inflation and other macroeconomic indicators from the domestic and international environment in the coming period.
Taking into account the further reduction of global inflationary pressures, as well as the previous disinflationary impact of restrictive monetary measures, the Executive Board estimated that the conditions have been created for the beginning of the easing of monetary policy through the reduction of the reference interest rate, according to the NBS announcement.
It is added that global inflation continues to decline and is approaching pre-pandemic levels, primarily due to the effects of the previous tightening of monetary conditions by central banks, weakening cost pressures and the easing of stagnation in global supply chains.
At its meeting on June 6, the European Central Bank began easing monetary policy by reducing key interest rates by 25 basis points each, indicating that the next measures will depend on a cautious assessment of inflation dynamics and projections of its movement in the coming period.
Year-on-year inflation slowed to 4,5 percent in May
The National Bank of Serbia announced that according to the data of the Republic Institute of Statistics, year-on-year inflation slowed down to 4,5 percent in May, which, in accordance with the projections of the central bank, returned to the limits of the target deviation, which is three plus, minus 1,5 percent.
The Executive Board of the National Bank of Serbia does not expect a significant increase in the prices of the products and services we import, but it is carefully monitoring all the factors that, both on the supply side and on the demand side, may affect the trend of inflation in the coming period, which will depend on future monetary policy decisions.
Most central banks predict that inflation in their countries will return to the target range in the second half of this year or the first half of next year, and market participants expect the cycle of tightening monetary policies to be over.
The announcement states that the further slowdown in the growth of food prices and the exit from the calculation of last year's increase in the price of electricity contributed to the decline in inflation. The NBS points out that when it comes to monthly inflation, it amounted to 0,4 percent in May and was largely driven by the growth in prices of products and services within the base inflation (0,6 percent) and the correction of cigarette prices (2,6 percent ) due to alignment with the increase in excise taxes.
It is added that the increase in prices within the base inflation was primarily driven by the increase in the prices of services, i.e. in May the prices of rent, transport services, vehicle maintenance services and insurance services increased, so that on an annual level the base inflation amounted to five percent.
Within the framework of food prices, for the first time since August last year, on a monthly basis, a price reduction of minus 0,2 percent was recorded, with different movements within the basic subcategories of food inflation - a fall in unprocessed food prices (-1,6 percent), driven by a seasonal decline the price of fresh vegetables, and a slight increase in the price of processed food of 0,4 percent.
Food price growth slowed to 1,3 percent
Observed on an annual basis, the growth of food prices, as stated by the NBS, slowed down to 1,3 percent, while the prices of vegetables were lower by 11,1 percent. The prices of energy products rose by 0,3 percent on a monthly basis in May, which was almost entirely determined by the 0,7 percent increase in the prices of oil derivatives.
On a year-on-year basis, energy prices rose by 7,6 percent in May.
NBS points out that according to the current projection, it is expected that inflation will continue to slow down until the end of the year and that in the next year it will move around the central value of the target, and such a movement will be significantly contributed to by the effects of the previous tightening of monetary conditions and the fall in inflationary expectations, it is concluded in announcement of the central bank.
