This week in monetary policy: Romania, Serbia and South Korea

     This week - January 10 through January 15 - central banks from 3 countries or jurisdictions are scheduled to decide on monetary policy: Romania, Serbia and South Korea.

     Following table includes the name of the country, the date of the next policy decision, the current policy rate, the local time a policy decision is announced, the result of the last policy decision, the change in the policy rate year to date, and the rate one year ago.
    The table is updated when the latest decisions are announced and can always be accessed by clicking on This Week.

WEEK 2
JAN 10 - JAN 15, 2022
ROMANIA	10-Jan	1.75%		0	0	1.25%	FM
SERBIA	13-Jan	1.00%	12:00	0	0	1.00%	FM
SOUTH KOREA	14-Jan	1.00%		0	0	0.50%	EM

 
    www.CentralBankNews.info

Serbia maintains rate but continues to tighten policy

     Serbia's central bank left its key interest rate steady but continued to tighten its monetary policy stance by raising the repurchase rate on securities and withdrawing a larger amount of excess liquidity from the banking sector.
     The National Bank of Serbia (NBS) left its key policy rate at 1.0 percent, unchanged since December 2020 when it cut the rate for the fourth time by a total of 1.25 percentage points.
      Citing heightened inflationary pressures, NBS last month took the first step toward tightening its policy stance by raising the rate on the auction of reverse repurchase securities and ending purchase auctions of repo securities, which had provided commercial banks with 3-month dinar liquidity at the low rate of 0.10 percent.
     NBS also began what it said was "a cycle of raising the weighted average rate" at repo sales of securities, with the rate in October raised by 16 basis points to 0.27 percent from 0.11 percent, the average rate since the start of 2021.

     "Tightening monetary conditions effectively, without changing the key policy rate and the interest rate corridor, the Executive Board noted that it is important to impact inflation expectations in conditions of cost-push pressures that are strong than anticipated," NBS said, pointing to higher prices for energy, commodities and transportation, and supply-chain issues.
     In addition, the usual decline in vegetable prices didn't happen this year due to drought, pushing up headline inflation in September to a higher-than-expected 5.7 percent from 4.3 percent, the highest since August 2013.
     NBS, however, said core inflation of 2.6 percent remains in the lower half of its target tolerance range of 3.0 percent, plus/minus 1.5 percentage points.
     As most other central banks, NBS expects most of the rise in inflation to be temporary and expects inflation to slow from the second quarter of 2022 and return to its target range by mid-2022 before heading to the lower half of the range before the end of the year.
     Noting the positive effects of easy fiscal and monetary policy, the central bank said Serbia's gross domestic product is now more than 3.0 percent higher than before the pandemic, with economic activity estimated to be up 7.4 percent year-on-year in the third quarter.

     Serbia's GDP rose an annual 13.7 percent in the second quarter from 1.8 percent in the first quarter.
     NBS raised its forecast for economic growth this year to 6.5 - 6.7 percent from its previous forecast of 6.5 percent and expects medium-term growth of 4.0 to 5.0 percent, which it said would "facilitate further convergence towards EU countries."
      The bank will present the November inflation report on Nov. 17.

Serbia holds rates but takes 1st step in tightening policy

     Serbia's central bank left its key interest rate steady but said it had taken the first step to tighten monetary conditions by raising the average rate at Wednesday's auction of reverse repurchase securities and canceled future repo auctions as it expects inflation to trend higher in coming months.

     The National Bank of Serbia (NBS) left its key policy rate, along with the rate on its deposit and lending facilities, at 1.0 percent, 0.10 percent and 1.90 percent, respectively.

     NBS has maintained its rate since December 2020 when the central bank cut its rate for the fourth time last year by a total of 1.25 percentage points.

      Inflation in Serbia rose to 4.3 percent in August from 3.3 percent in the previous two months, approaching the upper limit of NBS' target range of 3.0 percent, plus/minus 1.5 percentage points

     "The Executive Board expects that y-o-y inflation will most probably trend higher in the next several months than in August and, similarly to other neighboring countries, above the upper bound of the target corridor," NBS said.

      Low and stable core inflation, however, suggests the rise in headline inflation is mainly due to supply-side pressures while short- and medium-term inflation expectations are around the target midpoint.

      With the waning effect of this year's rise in commodity prices and rises in production and transport costs in the second half of 2022, NBS first expects inflation to return to the target range and the decline below the midpoint.

      Referring to its monetary policy framework that allows it to use a flexible approach to carrying out monetary policy, the central bank said it had "exercised a proactive approach" by adjusting monetary conditions following its previous board meeting on Sept. 9.

     "Monetary conditions were thus tightened without changing the key policy rate and the interest rate corridor," NBS said.

      At Wednesday's auction of reverse repurchase securities, NBS raised its average rate by 13 basis points to 0.24 percent.

      NBS has also decided to terminate repo securities auctions as of October through which commercial banks had been provided with 3-month dinar liquidity under the highly favorable condition of 0.10 percent.

Serbia keeps rate 5th time, sees 6% 2021 GDP growth

     Serbia's central bank left its key interest rate steady for the fifth time and said the rising trend of global commodities called for "cautious monetary policy conduct" while past fiscal and monetary measures will continue to maintain favorable financial conditions amid stronger-than-expected first quarter growth.
      The National Bank of Serbia (NBS) kept its key policy rate at 1.0 percent, unchanged since it was cut in December as the central bank wrapped up last year's four cuts that totaled 125 basis points.
     Last year's easing measures extended the bank's easing cycle since November 2013 during which the rate was cut 28 times and by a total of 10.25 percentage points.

     In addition to the rate cuts, Serbia's government was aggressive in its response to the COVID-19 pandemic, passing fiscal packages worth some 8.5 percent of gross domestic product last year. It has proposed a third package worth around 4.3 percent of GDP this year to support economic recovery.

     The result of the stimulus was the contraction in Serbia's economy last year was limited to around 1 percent, one of the smallest in Europe, and economic activity already returned to pre-COVID levels in the first quarter of this year when GDP grew 1.2 percent year-on-year, boosted by exports.

     With vaccinations under way and the service sector expected to recover, NBS forecast growth this year of 6 percent based on the results of the first quarter, above the bank's initial projections and the International Monetary Fund's April estimate of 5 percent.

     Serbia's headline inflation rate jumped to 2.8 percent in May from 1.8 percent in April and NBS said it expects a "somewhat" higher rate in May as well but said this rise is temporary and reflects the low 2020 base and the pandemic-related collapse in global oil prices.

     NBS targets inflation of 3.0 percent, plus/minus 1.5 percentage points.

     A core inflation rate of 1.8 percent signals the absence to any major demand-side inflationary pressures, the bank said, adding it expects a stable movement around the current level in the period ahead.

      "The Executive Board emphasizes the importance of cautious monetary policy conduct, mainly in view of uncertainty in the global commodity market - the rising trend in prices of oil, primary agricultural commodities and food, which has been in place for quite a while," NBS said.

      The May inflation report will be published on May 19.

Serbia cuts rate 1st time in 6 months to soften virus hit

     Serbia's central bank cut its key interest rate for the first time in six months to ease the potential negative impact on its exports from the rise in COVID-19 cases worldwide, and particularly Europe.
     The National Bank of Serbia (NBS) cut its policy rate by another 25 basis points to 1.0 percent and has now cut it four times this year by a total of 125 points.
     NBS has been in a monetary easing cycle since November 2013 and has cut its rate 28 times since then by a total of 10.25 percentage points.

      The rate cut took most economists by surprise but at its last meeting in November, the bank's executive board not only offered banks additional cheap liquidity in what it said was a proactive and preemptive measure, it also said low inflation showed there was room for additional monetary easing and it was ready to respond to any excessive negative effects from the pandemic.

     "Although the global economic recovery as of May was faster than expected, the accelerated spread of the virus as of October is worrying, particularly in Europe," NBS said, cautioning the challenges from the pandemic and its impact on the global and domestic economy will persist, particularly this winter.

     The spread of the virus would slow the recovery of the euro area - Serbia's most important trading partner - in the short run and drag down demand for its exports.

     "Today's decision of the Executive Board aims to mitigate a potential spill-over of the negative economic impact of these trends in the euro area," the bank said, adding the rate cut would provide additional support to the domestic economy.

     In addition to the rate cut, the board also narrowed its main interest rate corridor by 10 basis points to plus/minus 1 percentage points around the policy rate, which lowers the deposit rate by 15 basis points to 0.1 percent and the lending rate by 35 points to 1.9 percent.

      The board also approved keeping its inflation target of 3.0 percent, plus/minus 1.5 percentage points, until 2023.

     Serbia's economy bounced back faster than expected in the third quarter from the hit to its economy in the second quarter, supported by its own and the government's stimulus - and NBS confirmed it expects gross domestic product to shrink by 1.0 percent this year as compared to earlier forecasts of a 1.5 percent contraction despite a worsening of the pandemic since October.

     Serbia's GDP shrank an annual 1.4 percent in the third quarter after a 6.3 percent fall in the second quarter and growth of 5.2 percent in the first quarter.

     "A better outcome is supported particularly the faster than expected recovery of investment, mainly due to the preserved production capacities and employment in the pandemic conditions, the accelerated implementation of infrastructure projects and the secured more favorable financing conditions," NBS said.

     Government spending and easier financing conditions is expected to boost domestic demand and along with a further normalization of external demand, NBS expects growth in 2021 of around 6 percent.

     Serbia's inflation rate has remained stable in recent months - it was 1.8 percent in October and September - and NBS expects inflation to remain close to the lower part of its target range before rising toward the midpoint of 3.0 percent during 2022, reflecting a recovery of demand.

Serbia holds rate, offers liquidity as economy improving

     Serbia's' central bank left its key interest rate unchanged but said it will take proactive and preemptive measures in light of new risks to health from COVID-19 by offering banks the possibility of additional cheap liquidity in an environment of a faster-than-expected economic recovery from the crises.

     The National Bank of Serbia (NBS left its key policy rate at 1.25 percent, unchanged since June when it cut it for the third time in 2020, increasing the cumulative rate cuts to 100 basis points.

     In making its decision, the bank's executive board said it was guided primarily by the achieved and expected effects of the past monetary and fiscal measures to lessen the impact of the pandemic and it expects those measure to continue to have a positive impact on financing conditions.

     NBS has been in a monetary easing cycle since May 2013, cutting its rate 27 times and by a total of 10 percentage points.

     But as throughout Europe and the U.S., Serbia is seeing a rise in new cases of COVID-19 and NBS said it wanted to maintain a sufficiently high level of available and cheap liquidity in the banking sector, and in turn, the corporate sector to ensure a continuation of the stimulus.

     Although the banking sector still has excess dinar liquidity, NBS said the provision of additional assets should make financing conditions even more favorable by maintaining low interest rates and encouraging banks' lending.

     Banks will be able to use two dinar liquidity lines: foreign exchange purchase swaps and securities purchase repos. Swap auctions will be held on Mondays - the first one on Nov. 16 - and repo auctions on Thursdays - starting Nov. 19 - with banks given the options of obtaining liquidity for a 3-month period under favourable conditions using FX or dinar securities as collateral.

     The bank's preemptive measures comes as Serbia's economy has bounced back faster than expected in the third quarter, with NBS attributing this to a faster-than-anticipated recovery in investment, accelerated implementation of infrastructure projects and the more favorable financing conditions.

     Serbia's economy shrunk 9.2 percent in the second quarter from the first quarter, which also shrank 0.5 percent, and the central bank said its November inflation forecast confirmed its expectation that gross domestic product this year will only shrink 1.0 percent, up from its earlier forecast of 1.5 percent.

    "Led by rising domestic and external demand, the recovery from the crises should be more than full next year, with a GDP growth rate of around 6%," NBS added.

     Inflation in Serbia has remained low during the pandemic and NBS forecast it would continue to move in the lower half of its target band and gradually trend closer to the 3.0 percent midpoints in 2022 as demand recovers.

    "Such movements indicate that there is room for additional monetary policy easing in the period ahead," the central bank said, adding it was ready to respond to any excessive negative effects from the pandemic to changes in the domestic or international environment.

This week in monetary policy: New Zealand, Rwanda, Belarus, Serbia, Uganda, Egypt, Mexico & Peru

    This week - August 9 through August 15 - central banks from 8 countries or jurisdictions are scheduled to decide on monetary policy: New Zealand, Rwanda, Belarus, Serbia, Uganda, Egypt, Mexico and Peru.

    Following table includes the name of the country, the date of the next policy decision, the current policy rate, the result of the last policy decision, the change in the policy rate year to date, and the rate one year ago.

    The table is updated when the latest decisions are announced and can always accessed by clicking on This Week.

WEEK 33
AUG 9 - AUG 15, 2020:
NEW ZEALAND	12-Aug	0.25%	0	-75	1.00%	DM
RWANDA	12-Aug	4.50%	-50	-50	5.00%
BELARUS	12-Aug	7.75%	-25	-125	9.50%
SERBIA	13-Aug	1.25%	0	-100	2.50%	FM
UGANDA	13-Aug	7.00%	-100	-200	10.00%
EGYPT	13-Aug	9.25%	0	-300	14.25%	EM
MEXICO	13-Aug	5.00%	-50	-225	8.00%	EM
PERU	13-Aug	0.25%	0	-200	2.50%	EM

 

    www.CentralBankNews.info

Serbia cuts rate 3rd time but sees H2 recovery

     Serbia's central bank lowered its key interest rate for the third time this year to ease the negative effects on the country's economy from the spread of the coronavirus and boost growth against a backdrop of low and stable inflation and the unprecedented global economic recession.
     The National Bank of Serbia (NBS) cut its key policy rate by another 25 basis points to 1.25 percent, surprising most analysts who expected the rate to be maintained, and has now cut it by 100 points following cuts in April and March.
     NBS has been in a monetary easing cycle since May 2013 and has cut its rate 27 times and by a total of 10 percentage points since then.
     The central bank said today's rate cut took into account its previous easing and fiscal stimulus, and what it said was "a reasonable conduct of economic policy", which meant Serbia had faced the crises in a better position than in earlier crises. This had created the scope for further easing.
     Serbia is facing a nation election on June 21.
     NBS said it would continue to keep a close eye on global developments and their impact on Serbia's economy and would "respond in a timely manner to preserve the achieved price and financial stability, and contribute to sustainable growth."
      As other countries in Europe, NBS expects the worst effects of the measures to control the virus to impact the country's economy in the second quarter of this year - especially the month of April - and a recovery will begin in the second half.
      The global economic downturn is estimated to lead to lower than previously expected inflation as the negative effect of the pandemic on demand will outstrip the negative effect on supply.
     NBS forecast in its May inflation report the country's economy would shrink 1.5 percent this year, down from growth of 4.2 percent in 2019, before recovering and expanding around 6 percent in 2021.
     It should then return to a stable growth path of around 4 percent.
      "As the Covid-19 pandemic has pulled the global economy into an unprecedented recession and it is increasingly certain that it will open gradually, many central banks have adopted new measures to encourage faster recovery," NBS said.
      Reflecting subdued demand and low oil prices, inflation is expected to move around the lower bound of the central bank's target tolerance band of 3.0 percent, plus/minus 1.5 percentage points, the rest of this year and then gradually rise toward the midpoint in 2021 as demand recovers.
     Serbia's inflation rate fell to 0.6 percent in April from 1.9 percent in March while its gross domestic product shrank 0.6 percent in the first quarter of this year from the previous quarter for year-on-year growth of 5.0 percent.

Serbia cuts rate 2nd month in row amid low inflation

    Serbia's central bank cut its key policy rate for the second month in a row to "alleviate the negative effects of the coronavirus (Covid-19) on economic activity," adding monetary and fiscal measures are feasible due to the low and stable inflation.
    The National Bank of Serbia (NBS) cut its policy rate by 25 basis points to 1.50 percent and has now cut it by 75 points this year following a 50 point cut at an extraordinary meeting of its executive board during the global rate cutting spree on March 11.
     NBS has been in a monetary easing cycle since May 2013 against a backdrop of improving economic fundamentals and declining inflation and has now lowered its rate by 10.25 percentage points since then.
      Today's rate cut was mainly based on international data showing the negative effects of the virus on global economic growth "are stronger than expected," NBS said, adding this has been reflected in international commodity and financial markets, and decisions by central banks and government worldwide.
     In the first two months of this year, parts of Serbia's economy was topping the central bank's expectations but in the second half of March economic activity contracted due to lower external demand and business conditions in many sectors has worsened.
     "After contracting in Q2, economic activity is expected to recover in the remainder of the year, the pace of recovery depending on the length of the pandemic," NBS said, adding the medium-term economic prospects remain favorable and the negative effects of the crises in the short term should be mitigated by its own and the government's measures.
     In addition to its two rate cuts, and a narrowing of the interest rate corridor to 1.0 percentage point from 1.25 points relative to the policy rate, NBS has also provided additional liquidity to bans through repos of dinar government securities and foreign exchange swaps.
     In coordination with Serbia's government, the central bank also issued a moratorium on loan repayments for 90 days and fiscal assistance for businesses and individuals.
     Serbia's inflation rate edged down to 1.9 percent in February from 2.0 percent in January and NBS expects inflationary pressures to remain low going forward, with the risk of trending below its projection in February due to the sharp drop in oil prices and lower aggregate demand, which will partly be alleviated from the fiscal and monetary measures.
     In February NBS expected inflationary pressures to remain low and inflation to move around the lower bound of its tolerance range until mid-2020 before gradually approaching the midpoint.
     NBS targets inflation of 3.0 percent, plus/minus 1.5 percentage points.
     In February NBS confirmed its forecast for 2020 and 2021 economic growth of 4.0 percent, down from 2019's 4.2 percent.

This week in monetary policy: Israel, Australia, Poland, South Korea and Serbia

    This week - April 5 through April 11 - central banks from 5 countries or jurisdictions are scheduled to decide on monetary policy: Israel, Australia, Poland, South Korea and Serbia.
    Following table includes the name of the country, the date of the next policy decision, the current policy rate, the result of the last policy decision, the change in the policy rate year to date, and the rate one year ago.

    The table is updated when the latest decisions are announced and can always accessed by clicking on This Week.

WEEK 15
APR 5 - APR 11, 2020:
ISRAEL	6-Apr	0.25%	0	0	0.25%	DM
AUSTRALIA	7-Apr	0.25%	-20	-50	1.50%	DM
POLAND	8-Apr	1.00%	-50	-50	1.50%	EM
SOUTH KOREA	9-Apr	0.75%	-50	-50	1.75%	EM
SERBIA	9-Apr	1.75%	-50	-50	3.00%	FM

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Serbia cuts rate in response to rising virus uncertainty

    Serbia's central bank became the fourth central bank to cut its benchmark interest rate by 50 basis points at an extraordinary session of its policy board, saying this was a response "in a timely and adequate manner to the increased uncertainty in the international environment caused by the spread of the coronavirus (Covid-19)"
     The National Bank of Serbia (NBS) cut its reference interest rate to 1.75 percent, a new record low since it adopted inflation targeting as its monetary strategy in 2009.
     Since May 2013 Serbia's central bank has been steadily lowering its policy rate amidst a stable economy and low inflation and has now cut the rate by 10 percentage points since then.
     NBS' executive board was scheduled to meet on March 12, the same day as the European Central Bank (ECB), but pulled forward its meeting by a day, adding its rate cut was in line with those of other central banks worldwide and the ECB is also expected to ease its monetary policy.
     While 11 central banks from Sri Lanka to Mexico cut rates from late January through February, Australia's central bank kicked off the easing spree in March and was quickly followed by the U.S. Federal Reserve, the first central bank to cut its rate an extraordinary meeting, followed by other emergency rate cuts by the central banks of the UK, Iceland and now Serbia.
     "This should contribute to reducing uncertainty in the international financial market and maintain favorable financing conditions in the coming period," NBS said, adding it was closely monitoring any impact on the domestic economy from international financial markets and was ready to react in a timely manner with all available instruments to minimize any possible negative impacts on the domestic economy.
      In addition to the growing risks to global growth from the spread of the virus, NBS said its decision to ease its policy would support credit and economic growth, and also took into account domestic factors, including the view that inflationary pressures have eased further compared with its projection in February.
      In February NBS raised its estimate of Serbia's 2019 growth to 4.2 percent from 3.6 percent and confirmed its forecast of 2020 and 2021 growth of 4.0 percent.
      After being hit by drought in 2017, Serbia's economy has bounced back with growth last year topping the central bank's expectation with the growth in investments and household consumption countering any weakness in exports.
     In the fourth quarter of 2019 gross domestic product grew 6.2 percent  year-on-year while inflation rose to 2.0 percent in January, still below the bank's target of 3.0 percent, plus/minus 1.5 percentage points.
     Unlike many other central banks that have eased their policy to cushion any impact on economic activity from broken supply chains, lower trade and tourism, the NBS said its economy and financial system was "stable and strong enough to cope with the potential negative consequences of the spread of the coronavirus."
     It added Serbia's growth prospects remain favorable, given the level of investments, while financing conditions are also favorable, factors that should continue to stimulate growth.
      Data for the start of this year indicate last year's positive growth trend was continuing though NBS acknowledged that the slowdown in global growth, and its trading partners, could have the effect of slowing growth in Serbia.
     NBS expects inflationary pressures to remain low and inflation to move around the lower bound of its tolerance band until mid-2020 before gradually approaching the midpoint. Inflationary expectations are within its tolerance band one and two years ahead.
     The recent fall in commodity prices should further ease any inflationary pressures, it added.
     Unlike many other central banks that have eased their policy to cushion any impact on economic activity from broken supply chains, lower trade and tourism, the NBS said its economy and financial system was "stable and strong enough to cope with the potential negative consequences of the spread of the coronavirus."
     It added Serbia's growth prospects remain favorable, given the level of investments, while financing conditions are also favorable, factors that should continue to stimulate growth.
     In addition to lowering its reference rate, NBS also narrowed its interest rate corridor to 1.0 percentage points from 1.25 points, which means the deposit rate was cut 25 points to 0.75 percent while the rate on credit facilities was lowered 75 basis points to 2.75 percent.

     www.CentralBankNews.info

This week in monetary policy: Mauritius, Serbia, Ukraine, ECB and Peru

    This week - March 8 through March 14 - central banks from 5 countries or jurisdictions are scheduled to decide on monetary policy: Mauritius, Serbia, Ukraine, the euro area and Peru.

    Following table includes the name of the country, the date of the next policy decision, the current policy rate, the result of the last policy decision, the change in the policy rate year to date, and the rate one year ago.

    The table is updated when the latest decisions are announced and can always accessed by clicking on This Week.

WEEK 11
MAR 8 - MAR 14, 2020:
MAURITIUS	10-Mar	3.35%	0	0	3.50%	FM
SERBIA	12-Mar	11.00%	0	-25	18.00%	FM
UKRAINE	12-Mar	11.00%	0	-25	18.00%	FM
EURO AREA	12-Mar	0.00%	0	0	0.00%	DM
PERU	12-Mar	2.25%	0	0	2.75%	EM

   
www.CentralBankNews.info

Serbia cuts rate 3rd time and sees higher Q3 growth

    Serbia's central bank lowered its policy rate for the third time this year due to a further weakening of inflationary pressures but was upbeat about the outlook for economic growth, saying domestic factors have made up for weak external demand and growth in the third quarter should be higher than expected.
    The National Bank of Serbia (NBS) cut its key policy rate by another 25 basis points to 2.25 percent, a new record low since it adopted inflation targeting as its monetary strategy in 2009.
    NBS has now cut its rate 75 basis points this year following cuts in April, August and today.
    NBS said the cut should lend further support to credit and economic growth, with weak inflation both domestically and internationally the main reason for the rate cut.
     However, the easing was also influenced by the slowdown in global economic growth and trade along with the easier monetary policy by leading central banks such as the European Central Bank and the Federal Reserve, NBS said, adding the Fed's easing should help preserve favorable global financial conditions and and have a positive effect on capital flows to emerging economies.
     Headline inflation in Serbia fell further to 1.1 percent in September from 1.3 percent in August due to lower food prices during the agricultural season and lower global oil prices, and subdued inflationary pressures are also indicated by core inflation, which NBS said remains low and stable, as well as inflation expectations.
     According to its latest projection, which will be presented Nov. 14, inflation should move around in the lower bound of the target tolerance band of 3.0 percent, plus/minus 1.5 percentage points, until the end of this year and in the first half of 2020.
     Inflation should then gradually converge to NBS's midpoint target in the medium term, reflecting "elevated aggregate demand."
     "The latest economic indicators point to a higher than projected GDP growth in Q3," NBS said, led by a recovery of manufacturing after completed overhauls and a pickup in construction and services.
     Investments are also continuing to growth on the back of infrastructure projects, the business environment has improved and household consumption is continuing to rise due to prolonged labour market trends and the lower cost of borrowing.
    "In the year to date, domestic factors managed to compensate for the weaker external demand," NBS said.
    After being hit by drought in 2017, Serbia's economy grew 4.3 percent in 2018, its fastest pace in 10 years, an its public finances remain in surplus as in the previous two years and the current account deficit is fully covered by foreign direct investment flows for the 5th year in a row.
    Gross domestic product grew 2.9 percent in the second quarter year-on-year, up from 2.7 percent in the first quarter and in September NBS forecast 3.5 percent growth this year.
    Serbia's dinar has weakened this year against the U.S. dollar this year but steadily firmed against the euro, which accounts for more than 60 percent of its exports and imports.
     The dinar was trading at 106.1 to the U.S. dollar today, down 2.6 percent this year, and at 117.4 against the euro, up 0.6 percent.

Serbia cuts rate second time, inflation seen in control

     Serbia's central bank trimmed its policy rate for the second month in a row to provide additional support to the domestic economy while inflation is firmly under control at a time of slower global trade and growth that is leading to easier monetary policy by leading central banks.
     The National Bank of Serbia (NBS) cut its policy rate by another 25 basis points to 2.50 percent, a new low since the central bank adopted inflation targeting as its monetary strategy in January 2009.
     NBS has now lowered its main rate by 50 basis points this year, with the cut last month the first since April 2018.
     "By cutting the rate to a new lowest level in the inflation targeting regime, the NBS provides addition support to credit and economic growth," the central bank said, adding the decision was made in the context of the new August inflation report, which will be presented Aug. 14.
     Inflation is forecast to trend within the bound's of NBS' target tolerance band of 3.0 percent, plus/minus 1.5 percentage points over the next two years, most probably in the lower part of the band.
     Serbia's inflation rate decelerated to 1.5 percent in June from 2.2 percent in May and in June the NBS also forecast that inflation would move within the lower part of its target range this year and next year.
     In addition to low inflation, the NBS said its decision was made in the light of international developments, mainly the slowdown in global trade and growth that is being accompanied by "increasingly clear signals hinting at monetary policy accommodation, followed by actual measures by leading central banks," which should help maintain favorable global financial conditions longer than initially expected and thus have a positive impact on capital flows to emerging economies.
     However, NBS again said there were still factors warranting caution in monetary policy, pointing to global trade tensions and the possibility that decisions by leading central banks may deviate from market expectations as well as movements in oil prices and other commodities.
     Serbia's economy slowed in the first quarter of this year to 2.5 percent annual growth from 3.4 percent in the previous quarter but NBS expects growth this year to be led by domestic demand, i.e. investment and consumption, foreign direct investment and exports, that will continue to narrow external imbalances.
     After Serbia's economy took a hit from drought in 2017, growth rebounded to 4.3 percent in 2018 - its fastest pace in 10 years - and fiscal discipline has now taken root with the general government budget in surplus for two consecutive years and public debt falling by about 15 percent of gross domestic product since 2017.
     Last month the International Monetary Fund said Serbia's near-term outlook remained positive, with growth this year seen at 3.5 percent, and activity improving in the second half due to strong foreign direct investment, continued public investment and an assumed recovery in trading partners.
     The IMF forecast average inflation this year of 2.4 percent, up from 2.1 percent in 2018.

Serbia cuts rate 25 bps in first easing since April 2018

    Serbia's central bank lowered its policy rate by 25 basis points to 2.75 percent to support economic growth amid subdued inflationary pressures and an "increasingly likely" new round of monetary easing by the U.S. Federal Reserve and the European Central Bank (ECB).
    It is the first rate cut by the National Bank of Serbia (NBS) since April 2018, when it wrapped up a 5-year easing cycle from May 2013 after cutting cut the key rate by 8.75 percentage points.
     The central bank's executive board said domestic and international economic developments, along with the future prospects, had set up the conditions for the rate cut, and the rate is now at the lowest level since NBS adopted inflation targeting as its monetary strategy in January 2009.
     After adopting inflation targeting, NBS was faced with inflation that topped 10 percent during 2011, 2012 and 2013. But in 2014 inflation finally fell and has now been below the bank's target of 3.0 percent, plus/minus 1.5 percentage points for the last six years.
      In May inflation dropped to 2.2 percent from 3.1 percent in April, which NBS last month said was the peak for the year, after which inflation is expected to embark on a downward path and move within its target tolerance band - albeit in the lower part - until the end of this year and in 2020.
      Low and stable inflation confirms an environment of subdued inflationary pressures along with inflation expectations that fell in June to below the target midpoint.
      Internationally, slower economic growth and lower than expected inflation are the main characteristics, which is why the ECB and Fed first decided to slow their pace of rate hikes and now appear increasingly likely to embark on new monetary easing, NBS said.
     "A slower pace of normalization or a new round of monetary easing should have a positive impact on conditions in the international financial market and on capital flows to emerging markets," NBS said, underscoring its oft-raised concern that Serbia could face higher borrowing costs in the event of disruptions in global financial markets that lead to a reversal of capital flows.

Serbia maintains rate for 12th time, inflation seen stable

     Serbia's central bank left its key policy rate unchanged at 3.0 percent for the 12th consecutive meeting by its executive board, confirming it expects inflation to remain stable within its target range.
     The National Bank of Serbia (NBS), which has maintained its rate since ending a 5-year easing cycle in April 2018, added medium-term inflation expectations in the financial and corporate sectors also see inflation within its target range of 3.0 percent, plus/minus 1.5 percentage points.
     Serbia's inflation rate has been low and stable for the last 6 years though it rose to 2.4 percent in February from 2.1 percent in January, the highest rate since August last year on higher prices for food and on-alcoholic beverages, recreation and culture.
     As in March, the bank's board said the slowdown in global economic growth, the normalization of monetary policy by the Federal Reserve and the European Central Bank will be slower than expected and it is uncertain to what extent this process will differ from market expectations, which may trigger volatility in the flow of global capital.
     Though trade tensions have eased, NBS said protectionism and geopolitical tensions persist, making developments in commodity and financial markets uncertain, mandating caution in the conduct of its monetary policy.
     Serbia's economy slowed in the second half of 2018 but NBS expects growth this year to be led by domestic demand, such as investment and consumption, while foreign direct investments, which has more than fully covered the current account deficit for more than 4 years and hit 3.2 billion euros in 2018, will continue to reduce external balances.
      Serbia's gross domestic product slowed to annual growth of 3.4 percent in the fourth quarter of 2018 from 4.1 percent in the third quarter and in its February inflation report the NBS forecast growth in 2019 of 3.5 percent before accelerating to 4.0 percent in 2020, led by investments, exports and sustainable growth in household consumption.
      Inflation is projected to slowly rise toward the midpoint of the target range in coming months as the effects of past appreciation of the dinar wane and higher fruit and vegetable prices, the regular adjustment of excise taxes on cigarettes and the increase in utility prices.
     But a drop in petroleum product prices due to the drop in global oil prices in late 2018 and a season fall in the prices of travel and fresh meat will have disinflationary pressures.
     As in 2018, the NBS steps into the foreign exchange market on occasions, including last week, buying euros to keep the dinar from rising too much. The NBS maintains the dinar in a managed float against the euro.
      The NBS has been reported by dealers to purchase euros when the dinar rises below 118 to the euro and today the dinar was trading at 117.93 to the euro, up from 118.15 at the start of the year.

UPDATE-This week in monetary policy: Israel, Serbia, Sri Lanka, ECB, Namibia, Peru & Singapore

    (Following item has been updated with Singapore)

     This week - April 7 through April 13 - central banks from 7 countries or jurisdictions are scheduled to decide on monetary policy: Israel, Serbia, Sri Lanka, euro area (European Central Bank), Namibia, Peru and Singapore

    Following table includes the name of the country, the date of the next policy decision, the current policy rate, the result of the last policy decision, the change in the policy rate year to date, and the rate one year ago.

    The table is updated when the latest decisions are announced and can always accessed by clicking on This Week.

WEEK 15
APR 7 - APR 13, 2019:
COUNTRY	DATE	RATE	LATEST	YTD	1 YR AGO
ISRAEL	8-Apr	0.25%	0	0	0.10%
SERBIA	9-Apr	3.00%	0	0	3.00%
SRI LANKA	10-Apr	8.00%	0	0	7.25%
EURO AREA	10-Apr	0.00%	0	0	0.00%
NAMIBIA	10-Apr	6.75%	0	0	6.75%
PERU	11-Apr	2.75%	0	0	2.75%
SINGAPORE	12-Apr	N/A	N/A	N/A	N/A

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