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(Bloomberg) — Serbia’s central bank kept interest rates unchanged for an 11th month with growing inflation risks taking precedence over weaker economic growth.
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The National Bank of Serbia held the one-week repurchase rate at 5.75% on Thursday, as predicted by most analysts in a Bloomberg survey. The decision followed a surge in the annual inflation rate to 4.6% in June, from 3.8% in May, breaching the upper end of the central bank’s target range for the second time this year.
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Policymakers in Belgrade halted monetary easing after just three cuts in 2024 to tackle lingering price pressures, mainly from food and energy costs. Economic growth slowed to 2% in the first six months, after a full-year expansion of 3.9% in 2024. Officials have blamed the slowdown on widespread ongoing protests against the government and President Aleksandar Vucic, triggered by the deadly collapse of a roof at a railway station in November.
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The central bank sees full-year growth at 3.5%, down from 4.5% expected previously, due to the political unrest, trade tensions and weaker external demand.
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Volatile commodity prices are among key concerns for the central bankers, with ruptures in global trade also adding to inflation risks. US President Donald Trump slapped a 35% import tariff on the Balkan country, one of the highest in Europe, despite Serbia’s efforts to negotiate better terms.
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“In the remainder of the year, food prices will continue to put upward pressure on inflation, given a likely below-average agriculture season,” Fitch Ratings said on July 25, as it affirmed Serbia’s credit score at BB+, one level below investment grade.
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The ratings company also expects the central bank to remain cautions and possibly cut the policy rate once this year, by a quarter of a percentage point, followed by cumulative easing of 100 basis points in 2026.
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Serbia is also caught up in geopolitical tensions, with US sanctions threatening its sole NIS refinery due to its Russian ownership. Moscow, Serbia’s top supplier of natural gas, also recently criticized Belgrade over arms sales to Ukraine.
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—With assistance from Harumi Ichikura.
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English (US)