Central Bank cuts rates in July

At its meeting on 11 July, the National Bank of Serbia (NBS) Executive Board cut its key policy rate by 25 basis points to 6.00%. It also reduced the deposit and lending facility rates by 25 basis points to 4.75% and 7.25%, respectively. The move followed June’s same-sized cut.

The Central Bank's decision was primarily influenced by a sustained decline in inflation, which returned to within the NBS’s 1.5–4.5% target band in May and was in line with the Bank’s expectations. Moreover, the NBS noted that it expects inflation to remain within the target range ahead due to a decrease in global inflationary pressures and the disinflationary impact of previous restrictive monetary measures.

The NBS did not provide specific forward guidance on the future direction of interest rates but indicated that future monetary policy decisions will be data-dependent, focusing on the inflation outlook, financial stability and growth prospects. It emphasized the importance of monitoring domestic and international market developments closely for any adjustments in monetary policy. Our Consensus is for an additional 75 basis points of cuts by end-2024. The next meeting is scheduled for 8 August.

Mate Jelic, analyst at Erste Bank, commented on the outlook: “We reiterate our expectations the NBS will cut by an additional 75bps 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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