National Bank of Serbia Keeps Key Policy Rate at 6.5%, Raises Required Reserve Rates

At its meeting today, the NBS Executive Board kept the key policy rate at 6.5%. The rates on deposit (5.25%) and credit (7.75%) facilities also remained unchanged, the Governor’s cabinet announced.

The Board’s decision reflects further easing of global inflationary pressures, the downward trajectory of inflation at home and its expected return within the NBS target band over the monetary policy horizon.

– The Board also took note of the past tightening of monetary conditions and the fact that the full effects of earlier hikes of key interest rates are yet to play out. The pass-through of key policy rate increases so far to the rates in the markets of money, loans and savings signals the efficiency of the monetary policy transmission mechanism through the interest rate channel. However, being determined to curb inflation, the NBS decided to withdraw a portion of high excess dinar liquidity via reserve requirements, and thus tighten monetary conditions additionally – says the press release of the National Bank of Serbia (NBS), which today also announced that it had raised the required reserves rates.

As said on its website, “the National Bank of Serbia (NBS) continues its decisive fight against inflation – this time, using required reserve measures.”

According to the decision of the NBS Executive Board, the required reserves rates on foreign currency reserve base are raised by 3 pp each to 23% and 16% for liabilities with the contracted maturity of below and over two years, respectively.

At the same time, the percentages of dinar allocations of FX required reserves are raised by 8 pp each to 46% and 38% for liabilities with the contracted maturity of below and over two years, respectively.

The required reserves rate on the dinar reserve base are also raised by 2 pp each to 7% and 2% for liabilities with the contracted maturity of below and over two years, respectively.

Required reserves are a common monetary policy instrument which a central bank uses to regulate liquidity and by extension impact on the banking sector’s monetary conditions.

Narodna banka Srbije Beograd

National Bank of Serbia

NBS

key policy rate

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required reserve rates raised