Serbian town in the winter

Serbia Monetary Policy August 2020

Serbia: National Bank of Serbia stands pat in August

At its meeting on 13 August, the Executive Board of the National Bank of Serbia (NBS) opted to stand pat and keep the key policy rate unchanged at an all-time low of 1.25%. Subsequently, in an extraordinary meeting held on 17 August, the NBS adopted three sets of measures aimed at facilitating households’ access to financing. This should also support the construction sector by extension.

Regarding the key policy rate decision, the NBS assessed the impact of its previous monetary policy actions to mitigate the fallout from Covid-19 and determined that they, together with the government’s fiscal response, should support the financial and real sectors and “bolster economic growth”. Furthermore, the Bank stressed that its decision was facilitated by low and stable inflationary pressures: While price pressures rose in July, core inflation remained low and highlighted weakened aggregate demand. Moreover, the NBS expects inflation to hover close to the lower bound of its 1.5%–4.5% target range in the months ahead due to the fallout from the pandemic and lower import prices. Global developments also underpinned the Bank’s decision, as the monetary policy authority underlined lingering uncertainty over the evolution of the pandemic and economic recovery, in part due to China–U.S. tensions.

The next meeting is scheduled for 10 September.

The Bank’s statement did not contain any particular forward guidance, although it did highlight the room for “any future measures if the need arises, without jeopardizing price and financial stability or the country’s fiscal position”. While the NBS stated that the economic recovery, which began in May, had gained traction, the outlook remains uncertain. Consequently, our panelists have differing views on the key policy rate going forward, with some expecting the NBS to stand pat and others expecting further easing.

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