Serbian town in the winter

Serbia Monetary Policy December 2021

Serbia: Central Bank holds policy rate in December

The National Bank of Serbia opted to stand pat at its last scheduled meeting of the year, held on 9 December. Consequently, the key policy rate remained at its all-time low of 1.00%, which was in line with market analysts’ expectations. Meanwhile, the Bank reiterated that it would continue to tighten financial conditions through repo rates.

In deliberating its decision, the Bank noted greater cost-push pressures on the back of elevated energy and commodity prices, as well as supply bottlenecks and a low base effect. Inflation rose to 6.6% in October, but the Bank stated that “three quarters of yoy inflation was determined by factors beyond the influence of monetary policy—food and energy prices”. Moreover, core inflation has remained relatively benign due to a stable exchange rate, while inflation expectations remain well-anchored. Factors influencing headline inflation are expected to dissipate next year according to the Bank, giving it room to maintain its accommodative stance.

In its press release, the Bank once again stated that it “will keep a close eye on developments in the local and international environment”, and that it “stands ready to respond promptly by using all monetary policy instruments on hand should any of the risks that would keep inflation above the upper bound of the target band for a prolonged period of time materialise”. While the majority of FocusEconomics Consensus Forecast panelists expect the Bank to begin raising its key policy rate next year, some expect it to remain on hold.

The next meeting is scheduled for 13 January 2022.

Mate Jelic, analyst at Erste Bank, added:

“As long as the [one-week] repo rate remains below the key reference rate, the CB will likely leave the latter on hold, while gradually hiking the former. Looking ahead, should inflation remain above the target band for a longer period, i.e. not return within the band in mid-2022, the NBS could than start to lift the key rate as well. Our base scenario envisages the key rate will remain unchanged next year.”

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