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Serbia Monetary Policy June 2024

Serbia: Central Bank decreases rates in June

At its meeting on 13 June, the National Bank of Serbia (NBS) Executive Board reduced the key policy rate by 25 basis points to 6.25%, and lowered the deposit and lending facilities rates by 25 basis points to 5.00% and 7.50%, respectively. The move was broadly in line with market expectations and marked the first cut since 2020.

The Central Bank’s decision was primarily influenced by a consistent decline in domestic inflation, which returned to the target band in May, and by improvements in inflation expectations and other macroeconomic indicators. The NBS also highlighted that the ECB cut rates on 6 June—a move which contributed to its decision given that the NBS operates a managed float exchange rate regime between the Serbian dinar and the euro.

The NBS did not provide explicit forward guidance on the direction of interest rates. However, it stated that future decisions would depend on the pace of disinflation and that it would aim to maintain financial stability and positive growth prospects. The Consensus is for the Bank to cut rates by a further 75 basis points before the end of 2024.

The next meeting is set for 11 July.

Mate Jelic, analyst at Erste Bank, commented on the outlook:

“Going forward we expect the NBS to cut by an additional 100bps by year-end, which would set the key rate to 5.25%. In 2025, we expect the NBS to deliver another 125bps in cuts. The pace of cuts would thus be somewhat faster than what is expected from the ECB but with inflation in-check and continuously strong FDI pushing dinar higher, we feel there is space for the mentioned cuts.”

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