Serbia Monetary Policy September 2017


Serbia: NBS cuts key policy rate for first time in over a year

September 7, 2017

At its 7 September monetary policy meeting, the Executive Board of the National Bank of Serbia (NBS) surprised analysts by cutting the key policy rate 25 basis points from 4.00%—where it had been since July 2016—to 3.75%. In its decision to slash rates, the Bank recognized that inflationary pressures have weakened in recent months; it was also driven in part to stimulate economic growth following a weaker-than-expected expansion in H1. With this move, the policy rate now stands at its lowest level since the Bank introduced its inflation-targeting mandate more than a decade ago. Most analysts had expected the Bank to hold rates steady for another month.

In cutting the policy rate, the Bank hopes to boost lending to the private sector and spur growth. Inflation has been falling over the past several months, hewing closely to the midpoint of the Bank’s target rate of 3.0% plus or minus 1.5 percentage points, while core inflation has been relatively stable. These low inflationary pressures—subdued by oil-related base effects, the fading of one-off seasonal factors and lower dinar-based import prices—gave the Bank the slack it needed to lower rates in order to invigorate economic activity. Furthermore, inflation is expected to remain low in the medium term, which further incentivized the Bank to act.

The NBS’s communiqué contained little forward guidance as to whether the Executive Board will make further cuts in the months to come. The Bank expressed a cautious tone about the global outlook and pointed to uncertainty in commodity and financial markets. In particular, the Bank noted that conflicting monetary policies among leading central banks—including the Fed and the ECB—could lead to capital flight, hinting that the Executive Board will be hesitant to further cut rates if this month’s decision does not catalyze growth.

The next monetary policy meeting is scheduled for 9 October.

FocusEconomics Consensus Forecast panelists are currently revising their forecasts in light of the Bank’s decision. Updated forecasts will be available in the October publication.

Author:, Economist

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Serbia Monetary Policy Chart

Serbia Monetary Policy September 2017

Note: NBS Reference Rate in %.
Source: National Bank of Serbia (NBS).

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