By CentralBankNews.info
Serbia’s central bank cut its policy rate by 50 basis points to 8.0 percent, saying inflation is likely to remain below its target range in coming months due to temporary factors, including unexpectedly low growth in administered prices, and international and local commodities.
The Bank of Serbia (NBS), which has cut its rate by 150 basis points this year, added that a reduction in pensions and public sector wages would further increase disinflationary pressures.
The central bank, which has held off from cutting rates in recent months due to concern over the possible impact on capital inflows, said the government’s fiscal consolidation measures and structural reforms would moderate any “negative impact of external factors” while the expected conclusion of an arrangement with the International Monetary Fund (IMF) would further enhance the credibility of the country’s economic policy.
The NBS targets inflation of 4.0 percent, plus/minus 1.5 percentage points. Headline inflation in October fell to 1.8 percent from 2.1 percent in September.
The Bank of Serbia issued the following statement:
“In its meeting today, the NBS Executive Board decided to trim the key policy rate by half a percentage point, to 8 percent.
In making this decision, the Executive Board was guided by the fact that y-o-y inflation has been moving below the lower bound of the target tolerance band since March and that it is likely to remain there in the coming period given that the majority of factors will maintain their disinflationary impact.
Such inflation movements can be put down to factors with a temporary effect, notably the unexpectedly low growth in administered prices and international and local prices of primary commodities. The disinflationary pressures generated by factors with a lasting effect, such as aggregate demand, will be amplified still further by the cut in pensions and public sector wages.
The Executive Board expects that the initiated implementation of fiscal consolidation measures and structural reforms will moderate the negative impact of external factors stemming from uncertainties over monetary policy moves of the world’s major economies. The Executive Board judges that the expected conclusion of an arrangement with the IMF will provide an additional assurance of the credibility of Serbia’s economic policy.
The Executive Board also adopted the November Inflation Report which gives an overview of current macroeconomic developments and monetary policy measures. The Report will be presented to the public on 19 November.