Serbia Interest Rate

The National Bank of Serbia lowered its key policy rate by 25bps to a record-low of 2.25 percent at its November 7th 2019 meeting, surprising markets who expected no changes. Policymakers said inflationary pressures weakened and added that the decision was also influenced by developments in the international environment, namely the slowdown in global trade and economic growth and Federal Reserve and European Central Bank policies. Still, the central bank noted that resilience to possible negative impacts from the international environment strengthened. In September, annual inflation rate fell to 1.1 percent, its lowest since April 2018 and below the central bank's target of 3±1.5 percent. Policymakers expect inflation by the end of 2019 and in the first half of 2020 to be around the lower limit of the tolerance band.

The National Bank of Serbia left its key policy rate steady at a record low of 2.5 percent at its October 10th 2019 meeting, as widely expected. Policymakers said that monetary policy prudence is still needed, mostly due to developments in the international environment. The Committee added that the resilience of the domestic economy to possible negative impacts from the international environment increased due to the reduced internal and external imbalances, favorable macroeconomic outlook, and foreign exchange reserves. Policymakers noted that the annual inflation fell to 1.3 percent in August from 1.6 percent in July, due to a further decline of fruit and vegetable prices due to the new agricultural season. The Committee said that the inflation rate will be under control in the future, as in previous years, and added that the economy is expected to grow 3.5 percent this year, driven by domestic demand.

The National Bank of Serbia left its key policy rate unchanged at a record-low of 2.5 percent at its September 12th 2019 meeting, as widely expected. Policymakers said that prudence in monetary policy is still needed mainly due to international environment developments, namely uncertainty in financial and commodity markets, global trade tensions and the effects of the world's leading economies policies. The Committee noted that the annual inflation rate slowed to 1.6% in July from 2.2% in May, driven by a decline in the contribution of fruit and vegetable prices to inflation as the new agricultural season arrives and it is expected to be in the lower half of the target range both for the year and two years in advance. Policymakers added that the economy is projected to grow 3.5% in 2019 boosted by domestic demand and foreign direct investment.

The National Bank of Serbia lowered its key policy rate by 25bps to a record-low of 2.5 percent at its August 8th 2019 meeting, surprising markets who expected no changes. The move follows an unexpected 25bps cut in the previous meeting. In July, annual inflation rate fell to a fourteen-month low of 1.5 percent from 2.2. percent in June, the lower end of the central bank’s 1.5% to 4.5% target range. Over the next two years, policymakers expect inflation to continue to move within the target, most likely at the lower end.

The National Bank of Serbia lowered its key policy rate by 25 bps to 2.75 percent at its July 11th 2019 meeting, surprising markets who expected no changes. It is the first rate cut so far this year, bringing borrowing cost to its lowest on record. Policymakers said that inflation is expected to move to the lower bound of the target range (3.0±1.5%) by the end of this year and next year. The Committee projects that the economic growth will be driven by domestic demand, such as investment and consumption, and foreign direct investments, which will contribute to output growth and export capacities.

The National Bank of Serbia left its key policy rate unchanged at 3 percent during its June meeting, saying inflation is expected to move to the lower bound of the target band (3.0±1.5%) in the first half of 2020 and head steadily back towards the target midpoint in the period thereafter. Also, policymakers voiced concerns about persistent uncertainty in the international environment, amid new protectionist measures and trade tensions; while expect that economic growth this year will be led by domestic demand, i.e. investment and consumption.