The Executive Board of the National Bank of Serbia has made a decision to keep the reference interest rate at the level of 1.25 percent.
At today’s session, the Executive Board discussed current macroeconomic trends and expectations for the next period.
In making such a decision, the Executive Board primarily had in mind the realized and expected effects of previously taken monetary policy measures in order to mitigate the negative consequences of the pandemic and stimulate economic growth. The Executive Board pointed out that the results in most production and service activities exceeded expectations for the fourth month in a row.
It is quite certain that at the level of the year the result in terms of GDP growth rate will be better than previously projected -1.5% and that, according to the new projection, the reduction will be around 1% with more pronounced risks to an even more favorable outcome (asymmetric upwards), which will be one of the best results in Europe.
The pre-crisis level of activity in industry and retail trade has already been reached, exports are on the way to normalization, and in addition, the revised projection of GDP for 2020 reflects better results in construction and agriculture. The favorable outlook is also confirmed by the inflow of foreign direct investment, which has remained solid despite the pandemic and economic slowdown of our largest foreign trade partners and which continues to fully cover the current account deficit.
The rapid recovery of our economy speaks best about the adequacy of measures and activities carried out in a coordinated manner by the National Bank of Serbia, the Government and the President of the Republic, thanks to which we preserved production capacities and employment, and at the same time prevented a greater decline in business and consumer confidence.
The Executive Board expects that the current easing of monetary policy will continue to contribute to the preservation of favorable conditions for financing the economy and citizens and the growth of their disposable income. This will encourage further growth of domestic demand and, with the gradual recovery of external demand, enable the pre-crisis level of economic activity to be exceeded in the first half of next year.
The Executive Board emphasizes that the adoption of the mentioned incentive measures was possible in the conditions of preserved low and stable inflation, which was contributed, above all, by the provided relative exchange rate stability and full supply of goods in the crisis, as well as anchored inflation expectations.
Inflation was stable at the level of 1.9% year on year in August, and according to the assessment of the Executive Board, it will continue to move around that level in the coming months. The gradual approach of inflation to the central value of the target is expected in the medium term, which should be contributed by the recovery of demand, stimulated by monetary and fiscal policy measures.
At the global level, although economic activity is gradually recovering, partly thanks to the monetary and fiscal measures of the leading central banks, the outlook for the coming period still largely depends on the course of the pandemic. The recovery of our most important trade and financial partner, the euro area, is currently going above previous expectations, to which the ECB’s stimulus measures also contribute. Developments in the international commodity and financial market remain volatile, which, in addition to uncertainty about the course of the pandemic, also reflects geopolitical tensions in the world.
The Executive Board also emphasizes the increased resilience of our economy to shocks from the international environment, as a result of responsible conduct of economic policy in previous years and adequate response to the current global crisis. The fact that Serbia managed to preserve its credit rating during the pandemic speaks for itself, which is a clear recognition of the success of the Government and the National Bank of Serbia in preserving the macroeconomic and financial stability of Serbia and favorable prospects for economic growth.
The next session of the Executive Board, at which the decision on the reference interest rate will be made, will be held on November 12, B92 reports.
