The National Bank of Serbia (NBS), which has now cut its rate by 150 basis points this year, noted rising global liquidity on the back of the European Central Bank's quantitative easing and "the deferral of the increase in the Fed's rate."
Along with more "favorable prices of raw materials and energy," the central bank said this would reinforce prospects for a recovery of its key trading partners and diminish international risks.
Serbia's inflation rate jumped to 1.9 percent in March from 0.8 percent the previous month, still well below the bank's target corridor of 2.5 to 5.5 percent with a midpoint of 4.00 percent.
The National Bank of Serbia issued the following statement:
"At its meeting today, the NBS Executive Board lowered the key policy rate by half a percentage point, to 6.5 percent.
The Executive Board’s decision to cut the rate was taken in consideration of the fact that inflation is moving below the lower bound of the target tolerance band and that inflationary pressures are persistently subdued. These movements reflect low aggregate demand and the absence of major cost-push pressures in an environment of exceptionally low inflation abroad, low prices of primary commodities and weak growth in administered prices. Inflation expectations, which have been within the target tolerance band for over a year, declined still further in the course of several recent months.
The Executive Board stated that developments in the international environment have improved and that global liquidity is rising on the back of the ECB’s quantitative easing programme and the deferral of the increase in the Fed’s rate. Along with more favourable prices of raw materials and energy, the above reinforces the prospects for the economic recovery of our key foreign trade partners and diminishes the risks which may evolve from the international environment.
As assessed by the Executive Board, the positive effects of fiscal consolidation measures and the conclusion of the arrangement with the IMF confirm the commitment of the Serbian economic policy makers to strengthening public finances and ensuring sustainable recovery of the domestic economy. This, at the same time, contributes to better perception of investors and their increased interest in Serbia.
At its meeting today, the Executive Board also adopted an amendment to the Decision on Interest Rates Applied by the National Bank of Serbia in the Implementation of Monetary Policy, narrowing the corridor of interest rates set in reference to the key policy rate from ± 2.5% to ± 2.0%. As assessed by the Executive Board, this measure should help stabilise interest rates in the interbank money market.
The Executive Board also adopted the May Inflation Report, containing an overview of current macroeconomic trends and monetary policy measures. The Report will be presented to the public on 20 May.
The next rate-setting meeting will be held on 11 June 2015."