Serbian town in the winter

Serbia Monetary Policy June 2020

Serbia: National Bank of Serbia lowers key policy rate in June to new all-time low

On 11 June, the Executive Board of the National Bank of Serbia (NBS) opted to trim the key policy rate by 25 basis points to a new all-time low of 1.25%. The decision, which marked the third rate cut this year, brings the cumulative rate cuts since 11 March to 100 basis points.

The decision was underpinned by the Bank’s assessment that greater monetary policy support was needed to mitigate the impact of Covid-19 and support the economy going forward. Moreover, the Bank noted room to maneuver was provided by improved macroeconomic fundamentals compared to previous crises. Regarding inflation, NBS stated that inflation is expected to move around the lower bound of the 1.5%–4.5% tolerance band in the remainder of the year due to weakened domestic demand and low oil prices, providing further scope for monetary easing.

The next meeting is scheduled for 9 July.

The Bank’s statement was relatively devoid of clear forward guidance; however, it struck a slightly hawkish tone by stating that “the effects of the pandemic on the Serbian economy will be significantly mitigated with the additional key policy rate cut, together with earlier adopted monetary and fiscal policy measures.” This suggests further rate cuts going forward are not guaranteed. However, extra monetary easing is possible if the economy underperforms, and several panelists are penciling in further easing by year-end.

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