Key Policy Rate Kept at 8.5%
At its meeting today, the NBS Executive Board decided to keep the key policy rate at 8.5%.
Though y-o-y inflation rate is currently moving around the lower bound of the target and inflationary pressures are rather low as a result of low aggregate demand (main medium-term disinflationary factor), stable exchange rate and anchored inflation expectations, the Executive Board decided to keep the rate on hold, mindful of potential risks to the Serbian economy in the period ahead.
The Executive Board stated that the recent flooding is taking its toll on economic activity, particularly in the sectors of energy, mining and agriculture, and making the growth prospects for this year bleaker than anticipated. For the same reason, the balance of payments developments are likely be less favourable than earlier expected. Still, the impetus to economic activity will come from subsidised lending, flood damage restoration works and the expected accelerated implementation of the South Stream project.
The flood relief and damage restoration efforts will exert a one-off upward effect on government expenditure. Nonetheless, the Executive Board expects the Government will remain committed to the implementation of fiscal consolidation measures and structural reforms.
The decision to keep the rate unchanged was also underpinned by the Board’s awareness of the still present, though less pronounced, risks relating to liquidity levels in the international capital markets.
The next rate-setting meeting is scheduled for 7 August.