On July 9, at its 27th securities auction, the National Bank of Serbia (NBS) withdrew 360 billion dinars (around €3.07 billion) from the financial system by issuing one-week reverse repo treasury bills. The auction, which used a multiple variable interest rate model, had a maximum interest rate of 5.75%. The repurchase date is set for July 16.
This move raised eyebrows due to its large scale and timing. Despite high interest rates and inflation at 3.8% in May, NBS has kept the reference rate at 5.75% since September 2024. Questions emerged about the sudden liquidity surplus and why it was being withdrawn now, when economic growth is expected to depend on public and private consumption.
Financial expert Vladimir Vasić explained that NBS bills are not government debt but a monetary tool to absorb excess liquidity, stabilize market interest rates, and control inflation. He cited increased public spending, foreign exchange operations by NBS (which inject dinars into the system), and slow monetary transmission as reasons for excess liquidity.
“In these conditions, without sterilization, inflation could reignite and the dinar could weaken,” Vasić said. He emphasized that this auction signals the central bank’s commitment to monetary discipline and implies that high interest rates—and therefore expensive loans—will persist.
Professor Đorđe Đukić from the Faculty of Economics, however, questioned the effectiveness of short-term liquidity operations in curbing inflation. He argued that inflation control requires long-term structural measures on the demand side, not short-term adjustments.
At the auction, banks offered up to 442 billion dinars, with interest rates ranging between 4.51% and 5.75%. All 360 billion dinars were absorbed, suggesting strong demand for the risk-free, interest-bearing NBS securities. According to Đukić, the banks benefitted most: “Risk-free securities, steady interest—perfect for banks.”
The NBS is expected to continue using weekly securities auctions as a key monetary policy tool going forward.
