Serbia monetary policy September 2022

At its meeting on September 8, the National Bank of Serbia (NBS) raised its key interest rate by 50 basis points from 3.00% to 3.50% as it continued to tighten financial conditions to tame inflation. The National Statistics Bank also increased deposits and credit facilities by 50 basis points to 2.50% and 4.50%, respectively.

The bank’s decision was again driven by an “environment of persistent cost-push pressures and high imported inflation”. The National Bureau of Statistics stated that the decision is expected to reduce inflation expectations and thus the effects of the second round of food and energy price hikes. Core inflation has been fairly stable due to “relative exchange rate stability”. Moreover, the bank also came under pressure to continue tightening monetary policy as the US Federal Reserve and the European Central Bank sent clear signals of higher interest rates ahead.

The National Statistics Office did not directly specify the future course of monetary policy, noting that the war in Ukraine, as well as the movement of the main monetary and macroeconomic factors at home and abroad, will decide “whether there is a need for additional tightening of monetary conditions.” Committee members expect NBS to continue tightening in the face of persistent price pressures.

The next meeting is scheduled for October 6.

Mate Celik, analyst at Erste Bank added:

“We expect NBS to follow [the U.S. Fed and ECB] and continued to gradually tighten its policy despite the relatively widespread fears of slowing growth. Otherwise, they risk de-fixing inflation expectations and price and wage vortexes. Any earlier hopes that this energy shock was temporary have evaporated with the recent shutdown of Nordstream-1, adding to pressure on household and business sentiment. We expect the key rate to reach 4.5% by the end of the year, with further hikes in Q123.”

The National Statistics Office did not directly specify the future course of monetary policy, noting that the war in Ukraine, as well as the movement of the main monetary and macroeconomic factors at home and abroad, will decide “whether there is a need for additional tightening of monetary conditions.” Committee members expect NBS to continue tightening in the face of persistent price pressures.

The next meeting is scheduled for October 6.

Mate Celik, analyst at Erste Bank added:

“We expect NBS to follow [the U.S. Fed and ECB] and continued to gradually tighten its policy despite the relatively widespread fears of slowing growth. Otherwise, they risk de-fixing inflation expectations and price and wage vortexes. Any earlier hopes that this energy shock was temporary have evaporated with the recent shutdown of Nordstream-1, adding to pressure on household and business sentiment. We expect the key rate to reach 4.5% by the end of the year, with further hikes in Q123.”

FocusEconomics committee members expect the key policy rate to end in 2022 at 3.77% and 2023 at 3.79%.

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