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Key Policy Rate Cut by 0.5 Percent

The NBS Executive Board decided in its meeting today to cut the key policy rate by half a percentage point, to 5.0 percent. 

After reviewing current monetary and macroeconomic developments and projections, the Executive Board stated that inflationary pressures remain low and inflation expectations anchored within the NBS target. Subdued inflationary pressures reflect in particular low international prices of primary commodities, low inflation abroad, relatively stable exchange rate of the dinar and the effects of fiscal consolidation at home. Though the August increase in electricity prices has pushed y-o-y administered price growth into the positive territory, the contribution of administered prices to inflation this year should be smaller than in the previous years. As a result of past monetary policy easing and the gradual waning of the disinflationary effects of the fall in primary agricultural commodity prices, inflation is expected to revolve around the lower bound of the target band (2.5%) in the coming period, possibly entering the target band in late 2015 or early 2016. Inflation is expected to trend closer to the 4% target from mid-2016.

The Executive Board has assessed that the resilience of the domestic economy towards the risks stemming from the international environment has increased owing in particular to fiscal consolidation, improved economic growth prospects, reduced external imbalances, and the expectation of another positive assessment of Serbia’s arrangement with the IMF (second review).

In light of subdued inflationary pressures, the decision to continue monetary easing – by reducing both the key policy rate and the reserve requirement ratio, shall certainly contribute to Serbia's incipient economic recovery. When making the decision, the Executive Board was also bearing in mind the ECB’s downward revision of the euro area economic growth projection and the possibility that the quantitative easing programme will be extended. In an environment of increased certainty that the Fed will start raising its policy rate, the ECB’s quantitative easing programme has been having a positive impact on liquidity in the international financial market and has lessened the risks associated with capital flows towards emerging economies.

The next rate setting meeting of the NBS Executive Board will be held on 15 October 2015.

Governor’s Office