Serbia: NBS leaves rates unchanged in October
Bank pauses monetary easing: At its meeting on 10 October, the National Bank of Serbia (NBS) Executive Board decided to pause its monetary policy easing cycle. It kept the key policy rate at 5.75% and the rates on deposit and lending facilities at 4.50% and 7.00%, respectively.
Bank takes a wait-and-see approach amid heightened geopolitical uncertainty: In justifying its decision, the Bank highlighted that it had reduced rates by 75 basis points since June, adding that the effects of these cuts had yet to fully materialize. Despite inflation remaining within target since May, the NBS noted upside risks to the inflation outlook: The Bank voiced concerns over the unpredictability of macroeconomic developments internationally and geopolitical risks, particularly their potential impact on global commodity prices, as well as domestic challenges like the impact of unfavorable weather on agriculture fanning prices of agricultural commodities. Additionally, robust real sector data allowed the NBS to keep a restrictive stance.
NBS expected to cut rates again by year-end and in 2025: The NBS did not provide explicit forward guidance. Instead, it reiterated that it would continue to closely monitor and analyze domestic and international market developments, and base its decisions on the assessment of incoming data, the outlook for inflation and its key factors, and the effects of past monetary policy measures. All our panelists expect the Bank to resume its monetary policy easing cycle before year-end and see further cuts in 2025, with the Consensus sitting at a cumulative 125 basis points of reductions by end-2025. The Bank is set to reconvene on 7 November.
Panelist insight: Mate Jelic, analyst at Erste Bank, commented:
“Going forward we still expect one more 25bp cut by year-end, likely next month in November, which would set the key rate to 5.50%. In 2025, we expect the NBS to deliver another 100bps in cuts. The pace of cuts would thus be more or less similar to what is expected from the ECB by markets but with inflation in-check and continuously strong FDI pushing dinar higher, there could be enough space to squeeze in an extra cut in 2H25.”