ECB to lower key policy rate, and National Bank of Serbia to keep it at same level

The National Bank of Serbia (NBS) and the European Central Bank (ECB) have reduced key policy rates on three occasions this year. However, although analysts agree that the general trend is a loosening of monetary policies, it seems that “caution” is still the key word when we’re talking about potential decision that the central banks in Belgrade and Frankfurt are to announce today.

Analysts worldwide agree in their estimates that the ECB might soon lower the key policy rates again, by 25 base points. That’s the opinion of those surveyed by Bloomberg and Reuters, but also of the dean of the Belgrade Banking Academy (BBA), Zoran Grubisic.

Commenting on the speculations that the ECB might resort to a more frequent lowering of the key policy rates in the coming period in an attempt to give an impulse to the acceleration of the economic growth, Grubisic points out that there is still a limit up to which one can go.

– In October, the ECB lowered the interest rate for re-financing by 25 base points to 3.4%, whereas the “historic” average is at 3% and I don’t believe they will go below that line. Let us not forget that one of the key messages from the Banking Summit that was held in Belgrade last week is that the time of low interest rates will not return – points out Grubisic.

The economic problems which the European economy is facing, where the stagnation, that is, a weak growth, is only one of the consequences, can hardly be solved by inciting the demand, believes the dean of the BBA.

– That kind of approach could return like a boomerang in the form of a growing inflation and the ECB knows that very well. The problem is that it seems that there is no idea within the EU about what should be done to help the economy – estimated Grubisic.

The NBS at least does not have to worry about a weak growth, because the Serbian economy, as he points out, is not facing that problem currently. The risks threatening the Serbian economy are primarily external, that is, geopolitical. The governor of the NBS, Jorgovanka Tabakovic, talked about that precisely at the Summit, which was organized by the Serbian Association of Banks. She said that the NBS’s approach was cautious, regardless of whether it raised or lowered the key policy rate.

– We will not rush to lower the interest rates, because we have to take care for everybody who has money in their portfolio, home budget or corporation to have to know that that money will be valuable – Tabakovic pointed out and said that the interdependence of world economies was something that needed to be taken into consideration.

Furthermore, in October, due to the negative effects of the drought, the inflation level was slightly higher than expected and amounted to 4.5%, whereas the Government of Serbia, in preparing the 2025 budget, counted with this year’s inflation of 4.7% and a price growth of 3.5% in 2025. On the other hand, the NBS estimates that the growth of the GDP in 2024 will amount to 3.8%, whereas their central projection of growth for 2025 is 4.5%.

Zoran Grubisic explains that it is precisely thanks to the good result when it comes to economic growth that the NBS does not have to take a risk and lower the key policy rate at any cost.

– I believe that it’s time for a pause now, to follow the inflation expectations, to let the year end… Personally, I believe that the possibility of the key policy rate of the NBS remaining at the same level after today’s session is higher than 50% – concluded Grubisic.

Narodna banka Srbije Beograd

BBA-Beogradska Bankarska Akademija

National Bank of Serbia

European Central Bank

ECB

Belgrade Banking Academy

Zoran Grubišić

Jorgovanka Tabaković

key policy rate