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Serbia Monetary Policy May 2020

Serbia: National Bank of Serbia holds key policy rate in May after April cut

On 7 May, the Executive Board of the National Bank of Serbia (NBS) maintained the key policy rate at 1.50%. The move follows the Bank’s two consecutive cuts at its April meeting and emergency meeting in March.

In assessing the impact of the Bank’s previous monetary policy easing, the NBS determined that its coordinated effort with the Serbian government to support the economy in the face of the Covid-19 pandemic will help kickstart the economy when the outbreak subsides and restrictions are lifted. The Bank also highlighted that monetary and fiscal measures taken globally have stabilized financial conditions and will help the global economy find its footing. Regarding the economic outlook, the Bank foresees the economic contraction mainly being concentrated in the second quarter, with a swift recovery thereafter. Meanwhile, inflation remains low and stable (March: 1.3%) and, according to the NBS, will fluctuate around the lower bound of its tolerance band of 3.0% plus or minus 1.5 percentage points this year.

While the Bank’s statement was relatively devoid of clear forward guidance, the Executive Board highlighted that the reform agenda over the last several years has buffered the macroeconomic position. The Bank wrote, “owing to a responsible economic policy, Serbia faced this crisis in a much better macroeconomic position than before, which opened the space for increasing monetary and fiscal policy expansiveness, without jeopardizing macroeconomic and financial stability.” In that light, the Bank could potentially ease the rate further if the economic fallout is worse than expected. 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.

The next monetary policy meeting is scheduled for 11 June.

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