Serbian town in the winter

Serbia Monetary Policy November 2021

Serbia: Central Bank holds policy rate in November

At its 9 November meeting, the National Bank of Serbia (NBS) left the key policy rate unchanged at its all-time low of 1.00%. The decision marked the 10th consecutive hold, and was in line with market analysts’ expectations. However, the Bank continued to tighten financial conditions by targeting the repo rate and withdrawing excess liquidity from the banking sector.

In deliberating its decision to hold the main monetary policy tool unchanged, the Bank said that it expects the recent rise in inflation to “be temporary in character” and the factors pushing up prices “will dissipate next year”. It anticipates inflation to slow particularly in Q2 2022. Moreover, the Bank noted that the positive effects of prior large-scale monetary and fiscal support measures—including the third support package—would continue going forward, allowing it to take a wait-and-see approach.

While the NBS reiterated that it “will keep a close eye on developments in the domestic and international environment” and that it “stands ready to respond promptly”, the press release suggested that the policy rate will likely only be raised when there is room to do so. The majority of our panelists expect the Bank to hold the policy rate at 1.00% at its final meeting of the year, scheduled for 9 December, before embarking on a tightening cycle next year.

Mate Jelic, analyst at Erste Group, commented:

“The outlook regarding interest rates remains rather blurry. Should inflation pressures ease in 2022 the impetus to hike begins to fade, but on the other hand, above target headline inflation for a protracted period can build into future inflation expectations, and thus quickly spillover into real sector developments.”

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