NBS leaves rates unchanged in June

Central Bank extends pause: At its meeting on 12 June, the National Bank of Serbia (NBS) Executive Board decided to keep its key policy rate at 5.75%, where it has stood since September 2024; market forecasts were roughly split between a hold and a 25 basis points cut.

Trade turmoil drives the hold: The Bank opted to stay pat in the face of heightened uncertainty regarding global trade policies. The NBS flagged that higher tariffs could reignite inflationary pressures at home via higher production costs, a risk that ultimately dissuaded the Bank from reducing rates. On the flip side, the NBS did not raise rates as it highlighted that inflation moderated further within the 1.5–4.5% tolerance band in May as oil prices eased, and it expects price pressures to cool further in the coming months. Moreover, the Bank noted that GDP growth slowed in Q1.

NBS to cut rates ahead: The NBS did not provide specific forward guidance on future interest rate movements. That said, all our panelists expect the Bank to kick off a monetary policy easing cycle in Q3 as inflation eases further, with our Consensus pointing to a terminal 2025 rate of 5.00%. The next meeting is scheduled for 10 July.

Panelist insight: Mate Jelic, analyst at Erste Bank, commented: “If inflation develops according to forecasts […and] starts to drop towards the mid-point of the target range in the next few months, it will make sense to start easing monetary policy again, but pinpointing the exact timing is exceedingly difficult in the current global surrounding. Our base case is NBS will deliver the first cut, out of a total of three cuts in 2025, next month. The decision is however far from certain as a lot depends on the outcome of trade negotiations between the US and EU, as well as next week’s Fed meeting and messages.”

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