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Serbia Monetary Policy February 2020

Serbia: National Bank of Serbia holds policy rate in February

At its 13 February monetary policy meeting, the executive board of the National Bank of Serbia (NBS) kept the key policy rate at a record low of 2.25%.

Well-anchored inflation expectations underpinned the Bank’s latest decision. In December, inflation increased to 1.9% from 1.5% in November, rising further within the lower limit of the Bank’s tolerance band of 3.0% plus or minus 1.5 percentage points. The NBS continues to expect inflation to fluctuate within the lower half of the target range until mid-2020 and then gradually approach the target midpoint thereafter on the back of stronger demand pressures.

Turning to economic developments, the Bank touted the resilience of the Serbian economy, noting stronger-than-expected growth logged in 2019 and a reduction in public debt levels, while robust FDI inflows fully covered the current account deficit last year.

In its forward guidance the Central Bank maintained its cautious monetary policy stance. The NBS expressed concern about risks related to the international environment, particularly uncertainty regarding commodity markets. The Bank is likely keeping its policy ammunition available, while monitoring incoming economic data and foreign exchange market volatility. A small majority of FocusEconomics panelists foresee the NBS reducing the rate another 25 basis points before the end of this year. Further rate cuts will be particularly likely if inflation fails to recover as expected or renewed appreciation pressures on the dinar emerge.

The next rate-setting meeting is scheduled for 12 March.

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