At today’s session, the Executive Board of the NBS decided to again raise key interest rates by 50 basis points, to 3.5% ,, the deposit facility rate – to 2.5% and the credit facility rate – to 4.5%. The NBS had previously increased the key interest rate as per the decision of the Executive Board on August 11, this year.
The NBS’s Executive Board continued to tighten the monetary policy.,attributing this trend to increasingly rising inflationary pressure. According to the NBS, the Executive Board assessed that, in the conditions of continued price pressures, as well as the growth of imported inflation, it is necessary to continue with the course of tightening domestic monetary conditions. The NBS further emphasizes that such a decision will contribute to the downward trend of inflation in Serbia.
On the other hand, at the end of July this year, the ECB, as the central bank of the EU, decided to increase the key interest rate for the first time in more than 11 years. This “twist” was made as a measure of control for the inflationary jump in the Eurozone. Not only that, but according to recent statements from the Executive Board of the EBC, after the end of the period December 2021 – July 2022 which was the first phase for normalization of the ECB’s monetary policy, starting from September the monetary policy will enter phase two.
The meeting of the Governing Council which consists of six members of the Executive Board plus the governors of the central banks of EU member states, was held today at the headquarters of the ECB in Frankfurt. Under pressure from record inflation in the Eurozone, all indications stipulated that the ECB was preparing to significantly raise the key interest rate. “The ECB’s sense of urgency in tackling inflation has overtaken concerns over the damage an aggressive rate increase would inflict on the eurozone economy, the FT stated. The aforementioned expectations were fulfilled and the ECB decided to take a big step forward with raising interest rates by 75 basis points for the first time since the beginning of 1999. After this intervention, the three key interest rates will be 0.75%, 1.25% and 1.5% respectively, with effect from September 14, according to the EBC’s statement. The Governing Council’s future policy rate decisions will continue to be data-dependent and follow a meeting-by-meeting approach
Since October last year, the NBS has been gradually but continuously tightening monetary conditions on the Serbian market. Geopolitical events on the macro level certainly contribute to this, primarily the development of global prices of energy. Consequently, many central banks, including the most influential ones as the Federal Reserve System and the ECB, tightened their monetary policies faster than expected in recent months. The ECB and other world-leading central banks have been sending clear signals in recent weeks about tackling inflation, announcing further tightening of their monetary policies.
The next session of the NBS’s Executive Board is scheduled on October 6, when the decision on key interest rates will be reexamined. Gecić Law will continue to monitor the global developments of monetary policies and evaluate their effects on businesses in Serbia.
