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Serbia Monetary Policy July 2023

Serbia: Central Bank delivers second consecutive hike in July

At its 13 July meeting, the National Bank of Serbia (NBS) decided to hike the key policy rate to 6.50% from 6.25%. It also increased the deposit and lending facility rates by 25 basis points, bringing them to 5.25% and 7.75%, respectively. The move surprised markets on the upside for the second consecutive meeting; they had expected the Bank to hold rates after an unexpected hike in June.

In justifying its decision, the NBS said that the hike aimed to prevent an increase in inflation expectations and to ensure the return of inflation to its tolerance band of 1.5–4.5%. The Bank noted that inflationary pressures have eased in recent months at home and abroad due to lower commodity prices. Inflation fell to a 10-month low of 13.7% in June, and the Bank expects disinflation to accelerate in H2 on the back of past monetary tightening and softer imported inflation.

The Bank’s forward guidance remained muted; it reiterated that future decisions would take into account the evolution of trends in global commodity prices and financial markets, as well as the effect of past hikes on domestic inflation.

The next meeting is scheduled for 10 August.

Mate Jelic analyst at Erste Bank, commented:

“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, although liquidity in the financial system remains exceedingly high.”

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