Serbia: NBS maintains rates in May
At its meeting on 10 May, the National Bank of Serbia (NBS) Executive Board decided to keep the key policy rate at 6.50%, with the rates on deposit and lending facilities also remaining unchanged at 5.25% and 7.75%, respectively. The move marked the tenth consecutive hold and was in line with market expectations.
The Central Bank’s decision to maintain interest rates was primarily influenced by its medium-term projection for inflation and its expectations regarding the movement of key inflation factors ahead. The Bank highlighted that domestic inflation is slowing down at a faster-than-expected pace, curbed by past monetary tightening. That said, the NBS pointed to heightened volatility in global prices of energy and other primary commodities as risks to the inflation outlook, pushing the Bank to eschew rate cuts.
The communiqué did not provide specific forward guidance, stating instead that upcoming monetary policy decisions will depend on the pace of further inflation slowdown at home, while also considering the maintenance of financial stability and growth prospects. Our panelists expect the Central Bank to begin cutting rates in either June or July, with a total of slightly over 100 basis points of easing by the end of the year.
Mate Jelic, analyst at Erste Bank, commented on the outlook:
“Looking ahead, ECB is largely expected to start easing in June. Assuming inflation remains steadily on a declining path, we expect the NBS will follow and start cutting in July. […] Overall, we forecast the NBS to ease by a total of 125bps by year-end, absent any new inflation shocks.”
Raiffeisen Research’s Ljiljana Grubic said:
“Although, as usual, NBS did not give clear guidance when the first-rate cuts could be expected, we give a 50% chance that the rate will be cut by 25bp at the June meeting supported by the inflation entering into the inflation target and robust GDP growth […] in Q1. However, we also see high risks that the rate cut could be delayed to July, following the first ECB rate cut and thus after analyzing the impact of the ECB decision on the FX lending in Serbia. In the end, the rate cut cycle is approaching, and it is only a question of a particular month when the decision will be delivered.”