This document is a marketing communication.
Serbia Watch: Easing cycle still on hold
On the first key rate-setting meeting in 2025, the Executive Board of the National Bank of Serbia (NBS) decided to remain cautious and keep the rate at 5.75%. Still, high geopolitical risks and global market fragmentation pose inflation risk.
The Executive Board of the National Bank of Serbia (NBS) voted to keep the benchmark flat at 5.75% at the very beginning of the new 2025. The benchmark rate was cut by 75bp in 2024, but the rate cutting has been paused since October 2024 and the institution believes that the effect of those cuts will be felt also in the coming period. Though the headline inflation (Nov/24: 4,3% yoy) is within the inflation target (3% +/- 1,5pp) with the NBS expectation to stay within the target in the period ahead, at the same time NBS numbered a range of risks mainly related to the international markets that represent the upside inflation risk. Geopolitics and global market fragmentation are still weighing on trade and supply chains and could impact inflation and economic sentiment. Further, due to that, oil and gas prices remain uncertain, also climate changes are causing growth in specific food prices and scarce supply. Hence, such an environment is the reason for the NBS not to rush with the rate cuts, but instead to be cautious.
Today’s decision is not a surprise for us, and we continue to believe that the rate will remain unchanged during Q1 2025 due to still high core inflation (Nov/24: 5.4% yoy) and high agricultural prices (Oct/24: 11.4% yoy). On the other side, a stable exchange rate, weak imported inflation and a slowdown in personal consumption are having the disinflationary drift. We still believe inflation will be trending downwards, ending 2025 at 3.5% though there are risks reflected in the uncertain agricultural season and uncertain energy/commodities prices on the global markets. The first rate cuts are likely to follow in mid-Q2, due to expected core inflation slowdown, but also to align the EUR/RSD interest rate differential given the ECB decisive rate cuts (making the euro-indexed lending attractive) and NBS' aspiration to increase the dinar lending.
Forwards guidance says that NBS will be deciding from meeting to meeting depending on the fresh data from local and international markets, in particular inflationary data. At the same time, NBS will take care of maintaining financial stability and a favourable economic outlook.
Post 
Email
Ljiljana GRUBIC
Serbia Ljiljana joined Raiffeisen in 2001 as specialist for banking credit risk analyses, later enlarging its focus to municipalities and insurance credit risk analyses. In 2007 she moved to research team, becoming equity research analysts and afterwards in 2010 expanding its analytical skills to macro-economic analyses, becoming Economic Research Specialist. Her long experience in macro-economic analyses and forecasts was lauded by FocusEconomics awards, three years in a row, and her promotion to Chief Economist role. She is a speaker at corporate/investors conferences and roadshows organized within the Raiffeisen bank. In her spare time, she enjoys travelling and painting.
The Executive Board of the National Bank of Serbia (NBS) voted to keep the benchmark rate unchanged at 5.75% again. Concerns with the global geopolitical tensions and the impact it could have on the macro-economic development, supported today's decision. |
The monthly dynamics in retail prices resurged again in October (+0.6% mom) after 0.1% mom in September. The headline print increased only moderately to 4.5% yoy after 4.3% yoy in September, still it is now approaching the upper band of the inflation target (3% +/-1.5pp). |
The Executive Board of the National Bank of Serbia kept the key rate at 5.75%, pausing the easing cycle for the 2nd month in a row. Inflation concerns amidst geopolitical uncertainties that are causing energy price volatility prompted the NBS to be cautious. |
The €6 billion EU Growth Plan aims to accelerate the socioeconomic development and EU integration of the Western Balkans through investments in key areas like clean energy and digitalization. Tailored strategies are necessary to address unique economic challenges and leverage global shifts, enhancing regional economic prospects. The region’s potential for nearshoring further boosts growth opportunities. However, progress depends on resolving bilateral disputes and implementing essential reforms, particularly in governance and rule of law. |
The monthly dynamics in retail prices slowed their pace in September (+0.1% mom), after 0.4% mom increases in August and July. The headline print moderately slowed to 4.2% yoy after 4.3% yoy in August, thus remaining within the inflation target (3% +/-1.5pp). |