07/05/2020

Key Policy Rate Kept on Hold

At its meeting today, the NBS Executive Board voted to keep the key policy rate at 1.5%.

In making such decision, the Executive Board had in mind the undertaken monetary policy measures aimed at mitigating the economic fallout from the coronavirus (COVID-19), whose effects will be largely manifested with further resumption of economic activity. The Board was also guided by the fact that the direct support to the private sector, hit most by the crisis, has been ensured through timely and coordinated actions of the Serbian Government and the NBS, i.e. measures to support liquidity of the banking sector, introduction of a moratorium on loan repayment and launching a package of fiscal aid to businesses and households.

The Board emphasizes that the adoption of the monetary and fiscal policy support measures was made possible in an environment of low and stable inflation which, consistent with NBS expectations, slowed to 1.3% y-o-y in March. According to the Board’s estimate, inflation is likely to move around the lower bound of the target tolerance band in the remainder of the year against the backdrop of dampened aggregate demand and lower import prices, including oil prices. Inflation is likely to gradually get closer to the midpoint in the medium run, on account of the recovery of demand.

According to assessments of relevant international institutions, the spread of the coronavirus drove the global economy into recession and greatly deteriorated its growth prospects. In such conditions, uncertainty in the international financial market has increased, and investors favour safe assets, causing lower capital flows to emerging economies. Dented global growth prospects also reflected on the fall in the global prices of primary commodities, notably oil. To moderate the negative effects of the crisis, many central banks reacted by easing their monetary policies further, via conventional and unconventional measures, and governments in their countries offered robust fiscal stimulus packages. Coordinated moves of monetary and fiscal policy should contribute to alleviating the negative impact of the pandemic on economic growth, facilitating more favourable financing conditions and encouraging economic recovery in the coming period.

The economic contraction in the second half of March did not reflect significantly on Serbia’s GDP growth dynamics in Q1, which, according to the Executive Board, remained high, measuring around 5% y-o-y. Against the backdrop of weaker external demand and halts or disruptions to business in some areas, the negative effects of the crisis will be most visible in the present, second quarter, but economic activity will recover in the remainder of the year, aided by the timely taken monetary and fiscal policy measures. The Executive Board underscores that, owing to a responsible economic policy, Serbia faced this crisis in a much better macroeconomic position than before, which opened the space for increasing monetary and fiscal policy expansiveness, without jeopardizing macroeconomic and financial stability.

The Executive Board stressed that full coordination of monetary and fiscal policy will be maintained, which will help mitigate potential further negative effects from the international environment. The NBS will continue to keep a close eye on global developments and their impact on the domestic economy and inflation and will respond timely in order to preserve price and financial stability and contribute to Serbia’s sustainable economic growth.

At its meeting today, the Executive Board adopted the May Inflation Report. The Report and a detailed account of monetary policy decisions and underlying macroeconomic trends will be presented to the public on 13 May.

The next rate-setting meeting is scheduled for 11 June.

Governor's Office