Serbian town in the winter

Serbia Monetary Policy April 2023

Serbia: Central Bank raises policy rate to 6% in March with the fourth 25 basis point increase this year

At its meeting on 6 April, the National Bank of Serbia (NBS) increased its key policy rate by 25 basis points to 6.00%, matching March’s move. The hike had already been priced in by markets. In cumulative terms, the NBS has increased rates by 500 basis point since April 2022. Similarly, the deposit and lending facility rates were both increased by 25 basis points, reaching 4.75% and 7.25%, respectively.

The decision was aimed at reducing inflation, which stood at 16.1% in February, with the core inflation standing at 11.1%. The NBS argued that February’s inflation result was mainly driven by external cost-push pressures influencing food and energy prices. With April’s hike, the NBS also sought to anchor inflation expectations. The monetary authority expects headline inflation to return to the target tolerance band of 1.5%–4.5% by mid-2024. Given the limitations of domestic rate hikes against imported inflation, the Bank highlighted the importance of keeping a stable exchange rate against the euro. With this in mind, the NBS has been steadily intervening on both sides of the FX market in recent months.

The NBS did not provide forward guidance, but, as stated in previous releases, it highlighted the importance of domestic and international macroeconomic and financial developments, in addition to the lagged effect of previous hikes. FocusEconomics panelists expect that the NBS will leave rates unchanged for the remainder of the year.

Analysts at Erste Group agreed with that view:

“We expect the NBS will now pause with further hikes and keep the rate unchanged at current level for a prolonged period, basically until we see sustainable deceleration of inflation. Further tightening seems unlikely, as credit standards have tightened considerably already, while the impact on overall inflation is limited due to spillovers from imported inflation.”

The next meeting will be held on 11 May.

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