NBS leaves rates unchanged in October

Central Bank stands pat: At its meeting on 9 October, the National Bank of Serbia (NBS) decided to keep the key policy rate at 5.75% for the thirteenth consecutive month. The hold was in line with market expectations.

NBS weighs risks: On one hand, a rate hike was not warranted given that inflation fell sharply to well within the Bank’s 1.5–4.5% target range in September, as a result of the government’s six-month measure capping wholesale and retail trade margins. Moreover, the NBS expects inflation to remain on target ahead. On the other hand, the NBS likely decided not to cut rates as the economy is projected to have accelerated in the second half of the year, which could add upward pressure to prices. In addition, U.S. sanctions on Russian-owned oil firm NIS could also prove inflationary. Elevated international uncertainty further supported a wait-and-see approach.

Interest rates to be lowered in 2026: The NBS did not provide specific forward guidance, and our panel remains split for year-end: About half of our panelists expect the Bank to stay put, while the rest forecast 25–75 basis points of cuts. In contrast, all of our panelists project looser monetary conditions by the end of 2026, with easing of 50 to 125 basis points from current levels. The Bank will reconvene on 13 November.

Panelist insight: On the outlook, Erste Group’s Mate Jelic noted: “While capping wholesale and retail margins seems to have worked, at least in the short-term, caution surrounding inflation outlook is still warranted. While the NBS doesn’t reflect on it, sanctions against NIS which are in force as of today definitely have the potential to be inflationary if they remain in place for a longer period. […] We expect the NBS will remain on the cautious side for the time being, as inflation has proven to be quite stubborn, and we don’t see room for further cuts in 2025.”

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