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The National Bank of Serbia holds interest rates amid global uncertainty

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The Executive Board of the National Bank of Serbia (NBS) recently announced its decision to maintain the reference interest rate at 6.5 percent. This decision comes amidst global economic uncertainty, triggered by the announcement from the American Federal Reserve regarding the postponement of interest rate cuts. The implications of this decision, along with those of the European Central Bank, have raised concerns within the Serbian financial community.

Dejan Gavrilović from Ektevira emphasizes the necessity of addressing inflation to facilitate a reduction in interest rates. He points to the NBS’s previous increases in the reference interest rate, citing inflation as the primary concern. Gavrilović suggests that stabilizing inflation levels to pre-pandemic rates would create conditions conducive to lowering the reference interest rate.

Gavrilović observes that the NBS closely monitors the actions of central banks in the United States and Europe, suggesting that these influences will reflect in Serbia’s interest rate policies. He anticipates that interest rates will likely remain unchanged for the foreseeable future, especially considering the ongoing conflict in Ukraine, which he believes is interconnected with interest rate trends.

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While acknowledging the complexity of forecasting interest rate movements, Gavrilović highlights the recent reduction in the six-month Euribor as a factor influencing debtor interest rates. However, he underscores that the European Central Bank’s response depends on various geopolitical factors, such as conflicts in the Middle East, which could impact its decision-making process.

Reflecting on past NBS decisions, Gavrilović notes the institution’s propensity to respond to external economic indicators, such as changes in the Euribor. He suggests that recent increases in interest rates have contributed to higher loan installments for citizens, reinforcing the likelihood of interest rates remaining stable in the near term.

In conclusion, Gavrilović suggests that it may be premature to anticipate interest rate reductions, particularly in light of inflationary pressures in the United States. He emphasizes the interconnectedness of global economic factors and the necessity for the NBS to balance economic justification with practical implications when making interest rate decisions.

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