Serbian town in the winter

Serbia Monetary Policy October 2020

Serbia: Central Bank leaves interest rate unchanged in October

At its 8 October meeting, the Executive Board of the National Bank of Serbia (NBS) decided to maintain the key policy rate at the all-time low of 1.25%, marking the fourth consecutive hold.

The decision reflected the Board’s assessment that the monetary policy action taken so far is sufficient to mitigate the blow from Covid-19. The Bank stated that its accommodative stance should foster economic growth by supporting favorable financing conditions for firms and households, positively contributing to their disposable income. The NBS also highlighted that economic activity had beaten expectations for the fourth month running, and that it expects the economy to grow beyond its pre-crisis level in the first half of 2021. Additionally, given the stronger-than-expected economic performance, the Bank revised up its forecast for this year from minus 1.5% to minus 1.0%, with the balance of risks tilted to the upside. Low and stable inflation on the back of exchange rate stability and ample liquidity in the market further supported the Bank’s decision; the NBS expects inflation to continue hovering around its current level before returning to the midpoint of the 1.5–4.5% target range over the medium term.

The Bank’s statement did not contain any specific forward guidance and our panelists are split over the outlook for monetary policy for the remainder of this year and into 2021. Despite the stronger-than-expected economic performance, the outlook remains clouded by uncertainty, in part due to a potential resurgence of Covid-19 infections. As such, if the economic recovery loses traction and the pandemic intensifies again, the Bank could take further action.

The next meeting is scheduled for 12 November.

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