NBS decides not to raise benchmark interest rate

The National Bank of Serbia (NBS) said on Thursday it decided to keep its benchmark interest rate unchanged at 6.5% but has increased the required reserve rates.

The central bank also left unchanged the deposit facility rate and the lending facility rate at 5.25% and 7.75%, respectively, it said in a statement.

In making this decision, the central bank said it was guided by conditions of gradual weakening of cost pressures from the international environment, which should contribute to a more significant drop in imported inflation.

It is now necessary to see the full effects of the previously implemented measures before further tightening of monetary policy, NBS added.

The latest data published by the National Statistical Office showed that Serbia’s consumer prices growth slowed to 12.5% year-on-year in July, after easing to 13.7% the month before.

The central bank will hold its next rate-setting meeting on October 6.

“In the coming period, we can expect more alternative monetary policy management measures than interest rate increases,” said chief Bloomberg Adria analyst Andrej Knez.

“The news of the day is the central bank’s decision to increase mandatory reserves. This is the measure by which they want to influence inflation in the future. However, we have to mention that this will significantly benefit the central bank as it will actually pay a much lower interest rate on surplus liquidity,” he adds.

Knez added that the surplus liquidity was due to the NBS printing dinar notes for a considerable time now.

“All central banks are now at a turning point because they are shifting their focus from benchmark interest rates to alternative monetary policy management measures. In the coming period there will be a much greater focus on tools that extract surplus liquidity from the system,” said the analyst.

(Bloomberg Adria, 07.08.2023)


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