Serbia’s central bank raises key rate to 6.25% to tackle inflationary pressures

Serbia’s central bank raises key rate to 6.25% to tackle inflationary pressures
/ bne IntelliNews
By bne IntelliNews June 8, 2023

The Serbian central bank said on June 8 it decided to raise the key interest rate by 0.25 basis points to 6.25% (chart) to tackle inflationary pressures. The rates on deposit and lending facilities were also raised to 5% and 7.5%, respectively.

When making the decision, the executive board estimated that it is necessary to continue with a moderate tightening of monetary conditions. The aim is to prevent inflationary expectations from growing and to ensure that inflation follows a downward trajectory, returning to the acceptable limits set within the projection horizon.

The effectiveness of the transmission mechanism of monetary policy through the interest rate channel was evident in the previous increase in the reference interest rate, the bank said. It successfully impacted interest rates on the money market, loans, and savings.

In addition to the interest rate adjustment, the National Bank of Serbia (NBS) has maintained relative stability in the exchange rate of the dinar against the euro.

While global energy prices, including electricity and gas, along with other primary products, have decreased, inflationary pressures on a global scale remain a concern

The executive board highlighted the need for cautious monetary policy, especially considering uncertainties surrounding the duration of the conflict in Ukraine and energy availability and prices in the future.

Aligning with the expectations of the executive board, inflation in Serbia peaked in March and subsequently slowed down in April to 15.1% year-on-year.

This deceleration was largely influenced by a slowdown in the growth of food prices, which had been a significant contributor to inflation in the previous period.