At today’s session, the Executive Board of the National Bank of Serbia decided to continue easing monetary policy and lowered the reference interest rate by 25 basis points, to the level of 1.25%.
In making such a decision, the Executive Board had in mind that the scale of the crisis in the world caused by the spread of the coronavirus (Covid-19) requires additional monetary policy support to the domestic economy, to mitigate the negative effects of the crisis and stimulate economic growth. The Executive Board had in mind the previously adopted measures of significant easing of monetary policy and fiscal stimulus, but also the fact that, thanks to responsible economic policy, Serbia welcomed this crisis in a much more favorable macroeconomic position than previous crises. In this way, space is open to further increase the expansiveness of monetary policy and support the country’s economic recovery.
The Executive Board emphasizes that the decision to further reduce the reference interest rate was made in the conditions of secured low and stable inflation, whose slowdown continued in April, to 0.6% year on year, in line with the expectations of the National Bank of Serbia. According to the Executive Board, inflation for the rest of the year should be around the lower limit of the allowed deviation from the target (3 ± 1.5%) in conditions of lower aggregate demand, as well as lower import prices, including oil prices. 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.
With the spread of the coronavirus, the world economy has been plunged into unprecedented recession, and it is increasingly certain that its “opening” will be gradual, which has influenced numerous central banks to adopt new measures to encourage faster recovery. The recovery of the euro zone is especially important for us, which should be encouraged by the recently adopted additional measures of the European Central Bank, which increase liquidity and provide support for favorable financing conditions. Coordinated actions of monetary and fiscal policy in many countries of the world should contribute to more favorable financing conditions and encourage economic recovery in the coming period. The Executive Board also had in mind that due to the worse prospects for global economic growth, it is expected that the prices of primary products on the world market, primarily oil prices, will remain at a relatively low level in the coming period.
The Executive Board especially pointed out the fact that by further reducing the reference interest rate, together with the previously adopted monetary and fiscal policy measures, the effects of the pandemic on the Serbian economy will be significantly mitigated. It is almost certain that the greatest effects of the crisis, as in most other European countries, in Serbia were felt in April, but also that in the coming months there will be a recovery, driven by measures taken, which will lead to growth of gross domestic product in 2021 6%, without jeopardizing price and financial stability.
The Executive Board pointed out that full coordination of monetary and fiscal policy measures will be continued, which will enable the reduction of possible further negative influences from the international environment. The National Bank of Serbia will continue to closely monitor global trends and their implications for the domestic economy and inflation and react in a timely manner in order to preserve the achieved price and financial stability and contribute to the growth of our economy on a sustainable basis.
The next session of the Executive Board, at which the decision on the reference interest rate will be made, will be held on July 9, Kamatica reports.
