Serbia: National Bank of Serbia cuts policy rate in April
On 9 April, the Executive Board of the National Bank of Serbia (NBS) lowered the key policy rate by 25 basis points to a new record low of 1.50%. The move follows the Bank’s 0.50-percentage-point cut in March and other measures to ease monetary conditions, including the narrowing of the interest rate corridor and boosting liquidity through repo and FX swap purchases.
A worse-than-expected global economic downturn drove the NBS’ latest cut. Regarding the outlook for the Serbian economy, the Bank now foresees a sharp contraction in Q2 hammered by the fallout from the Covid-19 pandemic. That said, the Executive Board expects the economy to recover in the second half of the year, thanks in large part to a coordinated monetary and fiscal policy response, and remains optimistic about the medium-term economic prospects.
The NBS judged it had ample space to ease the rate given below-target inflation. The Bank now sees inflation risks as predominately to the downside as curtailed economic activity due to the virus and slumped global oil prices suppress price pressures. The Bank now foresees lower inflation over the medium-term than its previous projection in its February inflation report.
In its forward guidance, the Central Bank continued to signal a readiness to act again if economic conditions worsen, noting that “monetary and fiscal policy measures will continue to be fully coordinated, which will help ease potential further negative effects from the international environment and the consequences of the spread of the coronavirus”. FocusEconomics panelists largely see another 0.25-percentage-point rate cut before the end of the year amid ongoing uncertainty over the duration and severity of the pandemic, and consequently its drag on the global economy.
The next rate-setting meeting is scheduled for 7 May.