By CentralBankNews.info
Serbia’s central bank cut its policy rate by a further 50 basis points to 4.50 percent, saying the combination of easier policy and the gradual waning of disinflationary effects should help steer inflation back to the bank’s target range early next year.
The National Bank of Serbia (NBS) has now cut its rate by 350 basis points this year and said the latest cut took account of slower global growth, which could lead to longer-than-expected pursuit of accommodative monetary policy in advanced economies. In turn that would have a positive impact on liquidity in international financial markets and ease the risks to capital flows to emerging markets.
Serbia’s inflation rate eased to 1.4 percent in September from 2.1 percent in August but the NBS said in a statement from Oct. 14 that it should move back into its tolerance range of 2.5 to 5.5 percent in early 2016 and then return to the midpoint target of 4.0 percent from mid-2016.
Inflationary pressures remain subdued due to low inflation abroad, low prices of primary commodities and the relative stability of the dinar’s exchange rate that is based on the country’s improved macroeconomic performance, including a primary fiscal surplus in the first eight months of the year and full coverage of the current account deficit through foreign direct investments.
The National Bank of Serbia issue the following statement:
Serbia cuts rate 50 bps, sees lower risk to capital flows
October 15, 2015
“The NBS Executive Board decided at its meeting today to cut the key policy rate by half a percentage point, to 4.5 percent.
The Executive Board stated that y-o-y inflation continued moving below the lower bound of the target tolerance band, measuring 1.4 percent in September 2015. Inflationary pressures remain subdued as a result of low inflation abroad and low prices of primary commodities, but also relative stability of the dinar exchange rate underpinned by the country’s improved macroeconomic performance, notably in terms of favourable fiscal and balance of payments developments. This is evidenced by the primary fiscal surplus in the first eight months of the year and by the full coverage of the current account deficit by the inflow of foreign direct investments. Inflation expectations remain firmly anchored within the NBS target band, and even lower than the 4 percent target in the case of the financial sector.
Past monetary policy easing and gradual waning of disinflationary effects of the drop in primary agricultural commodity prices should help steer y-o-y inflation back within the target tolerance band early next year, while inflation’s return to the 4 percent target is expected from mid-2016.
The Executive Board expects that continued monetary easing through key policy rate cuts and gradual trimming of the required reserves ratio will encourage further lowering of bank lending rates and the recovery of lending activity.
In deciding on the key policy rate, the Executive Board took account of the global slowdown in economic growth, which could result in longer-than-expected pursuit of accommodative monetary policies by advanced economies. This would have a positive impact on liquidity in the international financial market, mitigating risks regarding capital flows to emerging economies.
The Executive Board has assessed that the improved macroeconomic outlook of the country is sustained by fiscal consolidation and structural reforms, reduced external imbalances and the anticipated second positive review of the arrangement with the IMF.
The next rate-setting meeting of the Executive Board will be held on 12 November 2015.”
