The National Bank of Serbia (NBS), which has now cut its rate by 250 basis points this year, said investors' perception had improved and the foreign exchange market was relatively stable after external risks eased in the wake of Greece's agreement with its creditors, the country's arrangement with the International Monetary Fund (IMF) and a more favourable performance of the economy and balance of payments.
Serbia's inflation rate eased to 1.0 percent in July from 1.9 percent in June, well below the bank's target range of 2.5 to 5.5 percent.
In July, when the NBS held its rate steady, it said that it expected inflation to return to its tolerance bank in coming months.
Serbia's dinar started depreciating in June 2014 but then bounced back in February. Since March the dinar has traded sideways, quoted at 120.2 to the euro today, largely unchanged this year.
The board of the NBS also approved its latest inflation report that will be presented on Aug. 19.
The National Bank of Serbia issued the following statement:
"The NBS Executive Board decided in its meeting today to cut the key policy rate by half a percentage point to 5.5%.
The Executive Board stated that y-o-y inflation continued to move below the lower bound of the target tolerance band and amounted to 1.0% in July.
The decision to lower the key policy rate was taken in view of the disinflationary effect of the majority of domestic factors, low inflation abroad and the stability of inflation expectations within the target tolerance band.
It was concluded that external risks have lessened after Greece had reached an agreement with international creditors, which, along with Serbia’s arrangement with the IMF and the more favourable than expected economic and balance of payments performances, contributes to the relative stability of the foreign exchange market and improved investor perception. The country’s macroeconomic outlook has improved also owing to the effects of fiscal consolidation which, at the same time, diminishes the exposure of the domestic economy to adverse external shocks, assessed the Executive Board.
The Executive Board also adopted the August Inflation Report that will be presented to the public on Wednesday, 19 August 2015.
The next rate-setting meeting of the Executive Board is scheduled for 10 September."