Serbian central bank keeps policy rate unchanged
Serbia’s central bank decided on October 6 to keep the policy rate at 6.5% (chart). The rates on deposit and credit facilities were also maintained at their current levels of 5.25% and 7.75% respectively.
The executive board's decision to maintain the reference interest rate at its current level was influenced by several key factors. These include the ongoing alleviation of global inflationary pressures and the established downward trajectory of domestic inflation, the National Bank of Serbia (NBS) said.
The board also took into consideration that monetary conditions had been tightened in the previous period through the adjustment of the interest rate, and in September through an increase in the reserve requirement rate.
The board was mindful of the overall decrease in international inflation, despite recent upticks in energy prices and heightened labour costs, prompting caution among central banks worldwide.
While global inflationary pressures are anticipated to further recede throughout the remainder of the year and into 2024, inflation is projected to remain above central bank targets in many countries.
Considering global energy prices and the persisting geopolitical tensions, as well as recent increases in crude oil prices, uncertainties persist.
In Serbia, year-on-year inflation has been on a downward trajectory since April, and in August, it slightly undershot the current medium-term projection at 11.5%.
This deceleration is attributed to slower growth in food prices and prices within core inflation (consumer price index excluding food, energy, alcohol, and cigarettes). The year-on-year growth in this category has remained in single digits since June, standing at 9.1% in August.
The executive board anticipates that year-on-year inflation will continue to follow a descending trend, decreasing by an average of about 1 percentage point per month. This suggests it is likely to reach approximately 8% by year-end.
This inflation pattern will be influenced by the easing of global cost pressures and the exclusion of food and energy price hikes from the year-on-year inflation calculation starting in the second half of 2022.
Russia’s strong growth, driven by heavy military spending, has created growing inflationary pressure as the economy starts to overheat, the Bank of Finland institute for Emerging Economies (BOFIT) says in its weekly update.
In the most recent poll conducted by the Russian Public Opinion Research Center (VTsIOM), President Vladimir Putin's trust rating remained steady at 78.5%.
Ukraine’s leading investment bank Dragon Capital has cut its GDP forecast for Ukraine in 2024 in half to 4% y/y in anticipation of another year of war, The New Voice of Ukraine reported on December 7.
Czech industrial production increased by 1.9% year on year and by 2.8% month on month in October. The October increase follows a 5% slump registered in September, which alarmed local analysts.
Since 2018, economy has carried risk of severe balance of payments crisis. For the removal of that risk, the central bank’s net in and off-balance sheet FX position should at least turn positive.
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