The National Bank of Serbia (NBS) Executive Board decided to trim the key policy rate to 3.25 percent, it was announced on Wednesday.
In making that decision, the Executive Board was primarily guided by the inflation projection and inflation factors in the coming period, the NBS said in a press release.
In accordance with the NBS expectations, inflation in February was lowered to 1.5 percent year-on-year, primarily on account of the high base from the prices of products that underwent one-off hikes early in 2017.
“Another confirmation of low inflationary pressures is core inflation, which measured 1.3 percent year-on-year in February. According to the February central projection, a slowdown in inflation, on account of the base effect, is also expected in the coming months, while in the course of 2019 inflation will gradually approach the target midpoint. Growth in domestic demand will also contribute to this. That inflationary pressures have remained subdued is also indicated by anchored inflation expectations – the financial and corporate sectors expect both one- and two-year ahead inflation to be at the target midpoint (3.0 percent). By lowering the key policy rate amid low inflationary pressures, the NBS will provide additional support to credit activity and economic growth,” the NBS said.
The Executive Board pointed out that caution in the conduct of monetary policy is still mandated by the international environment developments, primarily the developments in the international financial market and movements of global primary commodity prices.
“Uncertainty in the international financial market still prevails on account of the monetary policies of leading central banks, the Fed and the ECB, as well as the relationship between their currencies. Even though the movement of global primary commodity prices is still volatile, they are not expected to rise significantly in the coming period. The Executive Board pointed out that the resilience of the Serbian economy to potential adverse effects from the international environment has increased, owing to the strengthening of domestic macroeconomic fundamentals and a more favorable outlook for the period ahead,” the central bank said, announcing the next rate-setting meeting for April 12.