Serbian central bank, NBS, keeps key policy rate unchanged: Releases inflation forecast until end of 2023

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The NBS Executive Board has decided to keep the key policy rate on hold, at 6.50%.

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It did not change the rates on deposit (5.25%) and lending facilities (7.75%) either, the central bank announced.

"The Board's decision was motivated by further easing of global inflationary pressures, the established downward trajectory of inflation at home and its expected movement within the target band over the monetary policy horizon. Moreover, monetary conditions in the past period were tightened by means of the main instrument – the interest rate, and in September by increasing the required reserve ratio, with the full effects of these measures yet to play out," an NBS statement said, adding:

"The transmission of monetary tightening onto the interest rates in the money, lending and savings markets, and the reduction in short-term inflation expectations, signal the effectiveness of the monetary policy transmission mechanism.

In making the decision, the Executive Board took into account the declining global inflation, which, however, remains above the target of almost all inflation-targeting central banks. Amid the alleviation of cost-push pressures, the removal of supply bottlenecks, and tight monetary policy, in October the ECB did not change its main rate, following a data-dependent approach. The Fed held a similar stance as since July it has not changed its fed funds range. Global inflationary pressures are expected to dissipate further in 2024 and contribute to lower inflation at home."

The Executive Board underlined that geopolitical tensions still mandate caution in monetary policy decision-making, particularly in the wake of the new conflict that has broken out in the Middle East, as do the volatile movements of global prices of crude oil and some foodstuffs, which may also impact inflationary expectations. Still, relative to the maximum levels recorded last year, the prices of primary commodities are lower and if geopolitical tensions do not exacerbate further, we should not anticipate a major effect on global and domestic inflation on this account, the statement continued.

Year-on-year inflation in Serbia has been on a downward trajectory since April, with the August and September outturns slightly lower than expected.

"The retreating inflation reflected on a further fall in one-year ahead inflation expectations of the financial sector, as well as on two- and three-year ahead expectations which are within the NBS’s target tolerance band. According to our new projection, at the end of the year inflation will measure around 8% and return within the target band in mid-2024," the NBS said.

At today's meeting, the Executive Board adopted the November Inflation Report with the latest macroeconomic projections that will be presented to the public in detail at a press conference on November 15. The next rate-setting meeting will take place on December 7.

(Telegraf Biznis)