NBS cuts key policy rate by 0.25 pp, to 4.25%

The NBS Executive Board decided in its meeting today to cut the key policy rate by 0.25 pp, to 4.25%, the National Bank of Serbia announced in a release on its website.

The Executive Board also adopted amendments to the Decision on Interest Rates Applied by the National Bank of Serbia, narrowing the interest rate corridor from ± 2.0% to ±1.75% relative to the key policy rate.

The amendments were put through in an effort to contribute to further stabilisation of interest rates in the interbank money market, gradual reduction of the spread between the effective rate and the key policy rate, and strengthening of the interest rate transmission channel.

The Executive Board's decision was taken in consideration of the expected continuation of low inflationary pressures on account of the majority of domestic factors, as well as of weaker cost-push and demand-side pressures stemming from the international environment.

In the opinion of the NBS Executive Board, the slackening of some emerging markets, notably China, which seems increasingly certain, could have negative effects on global demand and economic growth, especially as regards the pace of growth of Serbia’s key trade partner – the euro area.

The continuing decline in global prices of oil and other primary commodities and the subdued prospects for their growth in the period ahead also work towards easing inflationary pressures.

In such circumstances it is even possible that the pace of normalisation of the Fed’s monetary policy will be slower than expected earlier. Besides, the ECB eased its monetary policy again in December and announced the possibility of further accommodation in March. The Executive Board assessed that year-on-year inflation will rise moderately from the middle of the year and return within the target tolerance band late this or early next year.

The National Bank of Serbia will continue to monitor closely the developments in the international environment and use all available instruments, to keep inflation low and stable, as this, together with preserving financial stability and a relatively stable exchange rate, is a precondition to accelerated but sustainable economic growth. Moreover, progress in fiscal consolidation and ensuring sustainability of public finances, improvement in the business and investment environment, and the narrowing of external imbalances will be of great assistance in moderating the effect of any external shocks.

The National Bank of Serbia expects that the continued monetary easing will lead to a further decline in lending rates and sustained recovery in lending, which will contribute to higher investment.

The Executive Board also adopted the February Inflation Report, which will be presented to the public on Friday, 19 February. The next rate-setting meeting will be held on 17 March 2016, the release reads.