Serbia Holds Rates as Inflation Risks Eclipse Slower Growth

p)hivutuaapdcs03({tlpmc9_media_dl_1.png Statistics office, National Bank

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(Bloomberg) — Serbia kept borrowing costs unchanged for an eighth month as concern over inflation and global trade tensions prevailed over a slowdown in economic growth amid months of public protests.

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The National Bank of Serbia kept its one-week repurchase rate at 5.75% on Friday, as predicted by most analysts in a survey. Only three out of 17 economists expected a quarter-point cut. Inflation has hovered around the upper end of the central bank’s tolerance range since July and was at a 4.4% annual rate in March.

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“Inflation at home greatly depends on developments in global commodity and financial markets which are currently highly volatile amid uncertainty related to trade policies of leading global economies,” the central bank said. “Global inflation will probably recede at a slightly slower-than-expected pace, while economic growth will be subdued due to disruptions in trade flows.”

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Serbia’s economy expanded 2% in the first quarter, slowing from 3.3% growth in the previous three months, according to a Statistics Office flash estimate. President Aleksandar Vucic blamed protesters for driving investors away and hampering economic activity with frequent street rallies and road blockades.

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The political unrest began after a roof collapse at a railway station left 16 people dead in November, prompting Vucic to replace the prime minister to appease protesters. But the demonstrations have snowballed into a movement against his decade-long rule, escalating demands from fighting corruption to holding early elections. Regular elections are due in 2027.

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“Our base case is NBS will deliver the first cut in July,” Erste Group Research said in a note, adding that inflation should fall to 4% by then. “However, given turbulent global and local developments, we expect the central bank will remain relatively cautious, delivering only two cuts in 2025.” 

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The central bank has said that price pressures remain largely external, especially in energy costs. The Balkan country is seeking to renew its arrangement for Russian gas imports at “favorable” prices, Vucic said on Thursday during a visit to Moscow.

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The Serbian leader is attending events in Russia’s capital marking the 80th anniversary of victory in World War II and is expected to negotiate a new gas contract with Vladimir Putin. 

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Discussions with Putin are to include US sanctions on Serbia’s sole refiner NIS, because of its Russian owners, Gazprom and Gazprom Neft. Imposed by the previous US administration, the punitive measures have been postponed under President Donald Trump until June 27. Serbia still needs to avoid disruption in its fuel market if the sanctions take effect.

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Another factor for policymakers in Belgrade is the currency, which came under depreciation pressures over the first three months of the year. The central bank, which keeps the dinar in a narrow range against the euro through a managed float, sold €955 million ($1.1 billion) from January to March to support its currency. 

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—With assistance from Harumi Ichikura.

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(Updates with central bank, Erste bank comments from third paragraph)

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