The National Bank of Serbia (NBS) announced that based on the expected inflation trend, the Executive Board has decided to keep the benchmark interest rate at 2.25 percent.
“Inflation has remained low and stable for the sixth consecutive year, and in December, according to the estimate of the Statistical Office of the Republic of Slovenia, was 1.9 percent yoy, and low inflationary pressures are expected in the coming period”, the statement said.
The Executive Board expects that, by mid-2020, year-on-year inflation is expected to move around the lower margin of tolerance, and subsequently, as a result of rising aggregate demand, gradually approach the central target. It added that prudence in conducting monetary policy was still needed, primarily due to developments in the international financial and commodity markets.
“The European Central Bank has been implementing a new monetary stimulus package since November, while the Federal Reserve System, after the last cut in the benchmark interest rate in October, is unlikely to change its monetary policy for some time”, the statement said.
Uncertainty is said to be present regarding the movement of oil and primary agricultural commodity prices on the world market, given the complex impact of numerous factors on both the supply and demand sides.
The Executive Board emphasized that the resilience of the Serbian economy to possible negative impacts from the international environment was enhanced by the full coordination of economic policies, which resulted in sustained strong economic activity growth and favorable macroeconomic prospects for the next period, which confirms the country’s credit rating.
Gross Domestic Product growth in 2019 exceeded its original projections and, according to a preliminary estimate by the RGZ, amounted to four percent, with the Executive Board stressing that investment growth of 14.2 percent in 2019 is particularly significant. Positive trends in the labor market are reported to be best illustrated by data on real wage growth of 8.5 percent in 2019, with unemployment falling to single digits, while, as in the previous two years, public finances were in surplus in 2019, and the record net inflow of foreign direct investment, for the fifth consecutive year, fully covered the current account deficit, writes Kamatica.
“A high level of foreign exchange reserves also provides a guarantee of resistance to possible shocks from the international environment”, it is written in the statement.
