National Bank of Serbia

October 7, 2021

Policymakers at the National Bank of Serbia, unlike several other central banks earlier this month, did not raise their key interest rate at the latest review. Following four reductions totaling 125 basis points between March and December last year, such will remain at a record low of 1.0%. However, an initial snugging of monetary policy was announced in the post-meeting statement.

The first measure to tighten monetary conditions was undertaken – at yesterday’s reverse repo auction, the average repo rate was raised by 13 bp to 0.24%. The Executive Board was guided by the fact that the higher level of inflation compared to the start of the year. [CPI inflation has climbed to 4.3% compared to a target range of 1.5-4.5%.] That these are mainly supply-side pressures is suggested by the continued low and stable core inflation (1.8% y-o-y in August) and short- and medium-term inflation expectations, which the financial and corporate sectors place at around the target midpoint.

Officials also “made the decision to terminate repo securities purchase auctions as of October, through which banks were provided with three-month dinar liquidity under highly favorable conditions (0.10%).” They left no doubt that their modifications were an intended policy tweak: “Monetary conditions were thus tightened without changing the key policy rate and the interest rate corridor. The NBS effectively exercised a flexible approach to monetary policy conduct, as it announced and as allowed by the monetary framework” and provided forward guidance pointing to more actions in the future: “The NBS will keep a close eye on developments in the domestic and international environment, ready to respond, if needed, by all monetary policy instruments on hand, with a view to maintaining monetary and financial stability.”

Copyright 2021, Larry Greenberg. All rights reserved. No secondary distribution without express permission.



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