At the session, the Executive Board of the National Bank of Serbia decided to keep the reference interest rate at the level of 1.25 percent.
A statement from the National Bank of Serbia states that in making such a decision, the Executive Board primarily had in mind the expected effects of the already taken monetary policy measures in order to mitigate the negative effects of the spread of the coronavirus (Covid-19).
Previous reductions in the reference interest rate – to the lowest level in the inflation targeting regime, will continue in the coming period, in an environment of high liquidity of banks, to affect developments in the financial and real sector and contribute to maintaining favorable financing conditions for the economy and citizens, they say in the NBS.
It is also stated that the Executive Board had in mind the expected effects of a comprehensive package of fiscal measures (of about 11 percent of gross domestic product – GDP), which provided support to the private sector, in order to encourage faster recovery of our economy from the pandemic effects. At the same time, the Executive Board emphasizes that the National Bank of Serbia is ready to react in accordance with possible additional effects of the pandemic in the domestic and international environment.
Developments in the international environment continue to be characterized by uncertainty, primarily regarding the global recovery from the effects of the pandemic and developments in the international financial and commodity markets.
Numerous central banks in the world have reacted in the previous period by easing their monetary policies, conventional and unconventional measures, in order to mitigate the negative effects of the crisis.
The recovery of the euro zone, with which Serbia has the most important trade and financial ties, should be encouraged by the measures taken by the European Central Bank aimed at increasing liquidity and providing support for favorable financing conditions.
The Executive Board emphasizes that the adoption of the mentioned incentive measures was possible in the conditions of provided low and stable inflation.
In line with the expectations of the National Bank of Serbia, inflation has slowed since the beginning of the year – to 0.7 percent year on year in May, mostly under the influence of the high base effect on last year’s vegetable prices and lower current prices of petroleum products, due to a significant drop in world oil prices.
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, the statement said.
The Executive Board especially pointed out the fact, they say, that Serbia welcomed this global crisis in a much more favorable position than the previous crisis, which enabled the adoption of monetary and fiscal measures which will significantly mitigate the effects of the crisis on the Serbian economy.
“It is almost certain that the biggest negative effects of the pandemic were felt in our country in April and that a recovery will follow in the coming months, encouraged by the measures taken, which will lead to a growth of gross domestic product in 2021 of at least 6 percent.”
This is confirmed by the indicators of economic and foreign trade activity for May, which indicate a recovery compared to April, as well as the leading indicators of economic expectations for June, both for Serbia and the euro zone,” the NBS said in a statement, Dnevnik reports.
