Thursday, June 11, 2015

Serbia cuts rate 50 bps, stance to remain cautious

    Serbia's central bank cut its policy rate by a further 50 basis points to 6.00 percent to counter "strong disinflationary pressures" from aggregate demand and low global commodity prices but added its monetary policy stance would remain cautions due to the uncertain state of the international environment.
    The National Bank of Serbia (NBS) has now cut its rate by 200 basis points this year to boost economic growth while inflation is is below the lower bound of its tolerance range.
    But the NBS said it expects inflation to return to its band in the second half of their due to its easing and the impact of administered and petroleum product prices that had a "temporary disinflationary effect in the prior period."
    The central bank targets inflation at a midpoint of 4.0 percent within a corridor of 2.5 to 5.5 percent.
    Serbia's inflation rate eased to 1.8 percent in April from 1.9 percent in March and has been below the central bank's lower bound since February 2014.

    The National Bank of Serbia issued the following statement:

"At its meeting today, the NBS Executive Board decided to trim the key policy rate by half a percentage point, to 6 percent. 

The Executive Board stated that inflation is moving below the lower bound of the target tolerance band and that it is expected to return within the band in the second half of the year  supported by past monetary policy measures and the impact of administered and petroleum product prices which had a temporary disinflationary effect in the prior period.  

In deciding to cut the key policy rate, the Executive Board was guided by an assessment that strong disinflationary pressures will emanate from aggregate demand, prices in the international environment and global market of primary commodities in the medium run. These disinflationary pressures will be underpinned by tighter fiscal policy at home and the effects of the ECB’s quantitative easing which, together with the expected successful completion of the first review under the arrangement with the IMF, should have a positive effect on the country’s risk premium and investors’ perception of Serbia as an investment destination. Coupled with a low current account deficit, this will have a positive impact on exchange rate stability and movements in the foreign exchange market, assessed the Executive Board.

The Executive Board assesses that continued monetary easing will have a positive effect on lending activity and expects an adequate reaction of  banks through a decrease in lending rates, particularly  on dinar lending, in order to support economic  growth in the period ahead.

Although movements in the international environment are more favourable, due mostly to increased global liquidity, uncertainties remain which warrant a cautious monetary policy stance, the Executive Board advised.

The next rate-setting meeting of the Executive Board will be held on 9 July 2015."


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