April 7 (SeeNews) - Serbia's central bank, NBS, is expected to lift its key repo rate further to 2% by the end of 2022, Austria's Erste banking group said on Thursday, after the central bank increased the rate to 1.5%.
"Faced with high inflation and deteriorating growth prospect, the central bank will likely look to address the former first and foremost, as otherwise they risk de-anchoring of inflation expectations, losing their credibility and ultimately undermining the effectiveness of future monetary policy moves. We expect more hikes are coming and see the key rate at 2% by year-end," Erste said in an instant comment of the NBS decision.
The Serbian central bank has resisted raising its key interest rate for a long time until exhausting the flexibility of its monetary approach and the question was not if the rate will go up, but by how much, Erste said.
"Risks are skewed towards the upside as we forecast average yearly consumer price inflation (CPI) this year close to double-digit area," Erste said.
NBS said earlier on Thursday it decided to increase its repo rate to 1.5% from 1.0% amid stronger and more permanent than previously expected inflationary pressures.
The central bank cut its key repo rate to 1.25% from 1.5% in June 2020 and to 1.0% in December to counter the adverse economic effects of the coronavirus outbreak.
Serbia's consumer prices increased by 8.8% year-on-year in February, after rising by 8.2% the month before, official statistics show. On a monthly comparison basis, Serbia's consumer price index (CPI) went up 1.1% in February, after rising by 0.8% in January.
In Southeastern Europe, Erste Group is present in Croatia, Romania and Serbia.