Serbia: Central Bank cuts rates again in September
Latest bank decision: At its meeting on 12 September, the National Bank of Serbia (NBS) Executive Board cut the key policy rate by 25 basis points to 5.75% and also reduced the rates on its deposit and lending facilities by 25 basis points to 4.50% and 7.00%, respectively. The move, which was largely in line with market expectations, continued the easing cycle that began in June, bringing the cumulative rate reduction to 75 basis points.
Monetary policy drivers: The decision to cut was primarily driven by inflation, which has been stable within the 1.5–4.5% target tolerance band since May, and the Bank’s expectation that it will decline towards the midpoint. Moreover, easing global inflationary pressures and the disinflationary impact of previous restrictive monetary measures convinced the Board that conditions were ripe for monetary easing.
Policy outlook: The NBS provided no explicit forward guidance on future interest rate movements, stating instead that it would maintain a cautious approach to monetary policy easing, basing future decisions on incoming inflation and macroeconomic data and taking a meeting-by-meeting approach. All our panelists expect the Bank to deliver additional cuts by end-2024, with most of them anticipating a reduction of either 25 or 50 basis points. The next meeting is set for 10 October.
Panelist insight: Mate Jelic, analyst at Erste Bank, commented on the outlook:
“Going forward we expect the NBS to cut by an additional 25bps by year-end, 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 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.”