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Serbia Monetary Policy October 2023

Serbia: Central Bank holds rates in October

At its 6 October meeting, the National Bank of Serbia (NBS) kept its key policy rate at 6.50%. It also held the deposit and lending facility rates at 5.25% and 7.75%, respectively. The decision marked the third consecutive hold and was in line with market expectations.

The Bank’s decision to stand pat was chiefly driven by the continued decline in price pressures: Inflation fell for the fifth successive month in August, coming in at 11.5%. Additional factors that supported the NBS’s decision are the fact that the full effect of prior monetary tightening has yet to materialize, and the estimation that the recent increase in oil prices will not alter inflation’s downward trend. Like at its September meeting, the Bank stated that it expects inflation to end the year at around 8.0% and to return to the 0.5–4.5% target band in Q2 2024.

The NBS did not provide explicit forward guidance. Instead, it stated that it would keep an eye on both domestic and international inflation drivers and make decisions based on the inflation outlook, while trying to preserve financial stability and support economic growth.

The next meeting is scheduled for 9 November.

Mate Jelic, analyst at Erste Bank, commented on the outlook: “In our view, the NBS will keep the key rate unchanged at 6.5% until 1Q24. The already conducted monetary contraction has slowed credit growth, but also overall economic growth, thus acting in a disinflationary manner. Global inflationary pressures are expected to abate further by the end of this and into next year. Locally, dinar liquidity surplus is continuously be mopped up through regular reverse repo operations, thus limiting possible inflationary pressures.”

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