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Serbia Monetary Policy June 2023

Serbia: Central Bank resumes hiking cycle in June

At its 8 June meeting, the National Bank of Serbia (NBS) decided to raise the key policy rate to 6.25% from 6.00%. It also increased the deposit and lending facility rates by 25 basis points, bringing them to 5.00% and 7.50%, respectively. The move surprised markets on the upside; they had expected the Bank to hold rates again after pausing its tightening cycle in May.

The NBS deemed it necessary to resume hiking in order to preempt a surge in inflation expectations and to ensure the return of inflation to its tolerance band of 1.5–4.5%—which the Bank now expects to happen in mid-2024. The Bank noted that inflationary pressures eased in recent months at home and abroad amid lower commodity prices and healthier supply chains. That said, it highlighted that there remains substantial uncertainty regarding energy prices and the length of the war in Ukraine, which could impact inflation on a global level. Meanwhile, the NBS reiterated the importance of keeping a stable exchange rate against the euro to keep imported inflation at bay.

The Bank did not provide explicit forward guidance. Instead, it stated 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 13 July.

Mate Jelic and Alen Kovac, analysts at Erste, commented:

“We expect the CB to remain on hold until the end of the year, despite their inclination to help boost slowing economic growth, carefully assessing the potential inflationary impact of the recently announced fiscal measures.”

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