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Serbia Monetary Policy April 2021

Serbia: Central Bank stands pat in April

The Executive Board of the National Bank of Serbia (NBS) held fire at its 13 April meeting, leaving the key policy rate unchanged at its all-time low of 1.00%. This marked the fourth consecutive hold after December’s 25 basis-point cut.

In deliberating its decision, the Bank acknowledged the continued supportive effect of prior monetary and fiscal policy action, as well as the third stimulus package announced by the government. It noted that data pointed to an ongoing economic recovery, particularly thanks to the manufacturing sector, despite the lingering health crisis. Moreover, the NBS expects services activity to gradually pick up, helping GDP to return to pre-pandemic levels in the months ahead. In terms of price pressures, the Bank expects inflation to remain stable at the lower end of its 1.5%–4.5% tolerance band ahead.

In its press release, the Bank reaffirmed its commitment to continue supporting both price stability and economic growth, while keeping a close eye on external and internal developments.

Mauro Giorgio Marrano, senior CEE economist at UniCredit, commented:

“We see a low likelihood of changes in monetary policy rates in 2021–22, with the probability of a hike slightly higher than that of a cut. Given the inflation outlook, we attach a low probability to a rate hike over the forecast horizon. An interest rate hike could be triggered in a scenario with significantly faster GDP growth, leading to a positive output gap and pushing headline and core inflation above target, a scenario we currently deem unlikely. At the same time, the NBS might resort to reducing interest rates further if there is an unexpected deterioration in the growth outlook and could also provide cheap liquidity to banks and resume bilateral purchases of government bonds; however, at the moment we regard this risk as low.”

The next meeting is scheduled for 13 May.

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