If 2022 was marked by an energy crisis and 2023 by the peak of inflation and high interest rates – what about the year ahead? We entered this year with apprehension not only regarding the price of energy but also whether there will be enough of it due to the war in Ukraine and sanctions against Russia, as reported by Bloomberg Adria. We closely monitored from month to month the decisions made by the two leading central banks – the U.S. Federal Reserve and the European Central Bank, which decided in the second half of the year to put one or three dots on the interest rate hikes.
What is the cost that Serbia, as well as other countries in the region, pay when it comes to energy and monetary shocks – due to expensive energy and the never more expensive money, i.e., interest rates? Sanja Filipović, a scientific advisor at the Institute of Social Sciences, and Nebojša Savić, a professor at FEFA, provided their projections and analyses for the Zoom in Belgrade project.
Decision on Interest Rates Between One and Three Points
After the energy and monetary shock, stabilization follows regarding both energy prices and interest rates, as mentioned in the Bloomberg Adria text.
Regarding interest rates, Nebojša Savić says that all countries in the world and all central banks faced a serious inflation spike last year.
“Now we have a situation where since July, the Fed has kept its interest rate at 5.25 to 5.5 percent, the ECB at four percent since July, and Serbia at 6.5 percent. This is a significant shock to the economy, given the previous long period of low-interest rates. But we should remember that whenever inflation rises, we need to react in a market-oriented way, that’s the best way.
We shouldn’t react administratively and regulatory, as we shouldn’t, but in a market-oriented way, which means regulating interest rates in financial markets. All central banks in the world will say the following: we are firm in this position now, but we leave room depending on how things develop; there could be one or three points. And three points can go up if the situation with inflation worsens, or they can go down, lowering benchmark interest rates if inflation is brought under control,” says Savić.
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