NBS Raises Key Policy Rate to 6.5%

At its meeting today, the NBS Executive Board voted to raise the key policy rate by 25 bp, to 6.5%. It also raised the deposit and lending facilities rates to 5.25% and 7.75%, respectively.

According to the official website of the National Bank of Serbia (NBS), in making such decision, the Executive Board assessed that monetary conditions need to be moderately tightened further to prevent a rise in inflation expectations and ensure that inflation strikes a sustainable downward path and returns within the target tolerance band in the projection horizon. The pass-through of the hitherto key policy rate hikes onto the rates in the markets of money, loans and savings signals the efficiency of the monetary policy transmission mechanism through the interest rate channel.

– The weakening of global cost-push pressures has continued, and global prices of energy, food and industrial raw materials are on a decline in y-o-y terms. However, the Executive Board believes that continued moderate tightening of monetary policy is still necessary given that inflation at the global level is showing signs of greater resilience than anticipated. Though inflation is gradually declining in many countries, it is still relatively high. Caution is also mandated by core inflation, which is receding at a slower pace than headline in many countries, due to the elevated inflation expectations and labor market factors, most of all further wage growth – the NBS said.

As added, this means that the struggle of central banks with inflation is not yet over and that an increase in policy rates of the world's leading central banks can be expected in the coming period as well. In the euro area, our key trade partner, headline inflation continued down, but its level is still well above the target. Emphasizing its determination to ensure inflation’s return to the target, the ECB tightened monetary policy further in June.

Narodna banka Srbije Beograd

NBS

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key policy rate increase

key policy rate

deposit facility rate increase

lending facility rate increase

deposit facility rate

lending facility rate