Central Bank holds rates in February

At its 8 February meeting, the National Bank of Serbia (NBS) kept its key policy rate unchanged at 6.50%. It also held the deposit and lending facility rates at 5.25% and 7.75%, respectively. The decision marked the seventh consecutive hold and was in line with market expectations.

In justifying its decision, the Bank noted that domestic inflation remained on a downward trajectory on the back of prior monetary tightening and a high base effect for food prices. It added that global inflation was receding at a faster-than-expected rate but highlighted that transportation costs had risen at the outset of 2024 due to supply chain disruptions in the Red Sea and the Suez Canal. The Bank reiterated that it sees inflation returning to the 1.5–4.5% target band in mid-2024.

The Bank’s communique was void of explicit forward guidance. The NBS is set to release its February Inflation Report on 14 February, along with additional information on monetary policy decisions. Our panelists project the Bank to cut rates by 75–300 basis points by year-end. The next meeting is scheduled for 7 March.

Analysts at the EIU commented on the outlook: “We expect that monetary tightening has come to an end for now, with consumer price inflation easing at a faster pace. We expect rates to remain on hold for the next six months or so and that monetary policy will loosen from mid-2024 onwards. However, there is a risk that inflation will remain sticky and that rates will stay higher for longer.”

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