NBS: Key policy rate cut to 1.25%

At its meeting on June 11, the NBS Executive Board voted to continue monetary policy easing and cut the key policy rate by 25 basis points to 1.25%.

– In making such decision, the Executive Board had in mind that the scale of the global crisis caused by the spread of the coronavirus (Covid-19) calls for additional monetary policy support to the domestic economy, in order to mitigate the negative effects of the crisis and boost economic growth in the period ahead. The Board took into account the previously taken measures involving substantial monetary accommodation and fiscal stimuli – the NBS says on its website.

The Board emphasizes that the decision on further trimming of the key policy rate was taken in an environment of low and stable inflation which continued to slow in April to 0.6% y-o-y, consistent with NBS expectations.

– According to the Board’s estimate, inflation is likely to move around the lower bound of the target tolerance band (3±1.5%) in the remainder of the year against the backdrop of dampened aggregate demand and lower import prices, including oil prices. Inflation is expected to gradually get closer to the midpoint in the medium run, on account of the recovery of demand supported by monetary and fiscal policy measures – it is added.

The NBS emphasizes that particularly important is the euro area recovery, which should be supported by the recent ECB measures aimed at providing liquidity and supporting favorable financing conditions.

– Coordinated monetary and fiscal policy measures in many countries across the world should contribute to more favorable financing conditions and encourage economic recovery in the coming period. The Board also had in mind that due to weaker global growth prospects, the prices of primary commodities in the global market, primarily of oil, will remain relatively low – it was said.

The Board particularly emphasized the fact that the effects of the pandemic on the Serbian economy will be significantly mitigated with the additional key policy rate cut, together with earlier adopted monetary and fiscal policy measures.

– It is almost certain that the strongest effects of the crisis were felt in Serbia in April, as was the case with most other European countries, while the months to come will experience recovery, supported by the undertaken measures. This will lead to GDP growth of at least 6% in 2021, without prejudice to price and financial stability – the NBS points out.

The next rate-setting meeting will be held on 9 July.

Narodna banka Srbije Beograd

NBS

European Central Bank

Executive Board of the National Bank of Serbia

monetary policy

key policy rate

coronavirus

covid 19

inflation

price of oil

euro area

liquidity

GDP

gross domestic product