Central bank cuts key policy rate to 3 percent

The Executive Board of the National Bank of Serbia (NBS) decided on Thursday to trim the key policy rate to 3 percent.

Source: B92

At the same time, the decision was made to narrow the interest rate corridor from ±1.5 to ±1.25 percentage points, meaning that the deposit facility rate remains unchanged.

In making such a decision, the Executive Board assessed that the expected movement in inflation and its underlying factors going forward allow for further monetary policy easing, the NBS said in a press release, and added:

"The slowdown in inflation in the past three months was stronger than expected. In March, year-on-year inflation equaled 1.4 percent, indicating a further reduction in inflationary pressures. That inflationary pressures are low is also confirmed by movements in core inflation, which decelerated to 0.8 percent year-on-year in March, its lowest level since inflation has been measured by the consumer price index."

As highlighted by the Executive Board, under the projection, inflation will stay around the current level in the coming months, while it is "expected to come closer to the midpoint during 2019, also on account of growth in domestic demand."

Inflationary pressures remain subdued as also indicated by anchored inflation expectations of the financial and corporate sectors, which expect even two-year ahead inflation to be at the target midpoint (3.0 percent). By lowering the key policy rate amid low inflationary pressures, the NBS will provide additional support to credit activity and economic growth, the bank said.

The Executive Board "pointed out that caution in the conduct of monetary policy is still mandated by the developments in the international financial market and movements of global primary commodity prices."

"Uncertainty in the international financial market still prevails on account of the monetary policies of leading central banks, the Fed and the ECB, as well as the relationship between their currencies. Even though the movement of global primary commodity prices is still volatile, they are not expected to rise significantly in the coming period. The Executive Board pointed out that the resilience of the Serbian economy to potential adverse effects from the international environment has increased, owing to the strengthening of domestic macroeconomic fundamentals and a more favorable outlook for the period ahead," the NBS said.

The next rate-setting meeting will be held on May 10, 2018.

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