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Serbia Monetary Policy October 2022

Serbia: Central Bank continues its hiking cycle in October

The National Bank of Serbia (NBS) hiked the key policy rate by 50 basis points to 4.00% from 3.50% at its 6 October meeting. The decision was in line with market analysts’ expectations and marked the seventh consecutive hike, bringing the cumulative increase to 300 basis points since April. The Bank also raised the deposit and credit facilities by 50 basis points to 3.00% and 5.00%, respectively.

The NBS’ move came on the back of protracted inflationary pressures on the supply side of the economy. The move was primarily aimed at containing the effects of inflation on demand, second-round effects and inflation expectations. The Bank expects inflation to have peaked in September and thereafter commence a downward journey that will last throughout next year. The NBS expects inflation to return to target at the end of its forecast horizon in 2024. Regarding the economy, the Bank foresees a winter lull and for economic growth to average 3.5–4.5% in 2022 as a whole.

The NBS did not explicitly indicate the direction of future monetary policy moves. The Bank stated that it “will assess if there is a need for further monetary tightening” amid the backdrop of the war in Ukraine, as well as the movement of major monetary and macroeconomic factors at home and abroad. Our panelists anticipate that the NBS will continue to tighten in the face of persistent price pressures.

The next meeting is scheduled for 10 November.

Mate Jelic, analyst at Erste Bank, added:

“We expect the NBS will continue to gradually tighten its policy despite relatively widespread fears of growth slowdown during the next two quarters. Otherwise, they risk de-anchoring of inflation expectations and price-wage spirals given relatively solid labor market developments. We expect to see the key rate reach 4.5% by year-end, hence another 50bps hike by year-end, and 50bps further hikes in 1Q23.”

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