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Serbia Monetary Policy September 2019

Serbia: NBS holds fire in September after previous month’s rate cut

At its 12 September monetary policy meeting, the executive board of the National Bank of Serbia (NBS) decided to keep the key policy rate on hold at 2.50% after unexpectedly cutting it by 25 basis points in the prior month. The decision was mainly guided by the Bank’s desire to assess the effects of its previous monetary policy easing, while inflation remains below target.

Inflation edged down to 1.3% in August, which was within the lower half of the Bank’s tolerance band of 3.0% plus or minus 1.5 percentage points, and the NBS expects it to remain below the 3.0% midpoint for the remainder of this year and into next year. Regarding the economic outlook, the Bank pointed to continue resiliency in the Serbian economy. GDP growth picked up in the second quarter, supported by strong investment and sustained consumer spending. Serbia’s sounder domestic fundamentals were also affirmed by Moody’s recent credit rating outlook upgrade from stable to positive (Ba3).

The Bank struck a cautious tone in its communiqué. The NBS noted that international developments and uncertainty surrounding the impact of trade tensions and “the politics of leading world economies”—primarily, whether the rate cut by the U.S. Fed is a one-off measure or the start of an easing cycle—and other external factors such as global oil price developments are reason to maintain a cautious stance regarding its monetary policy conduct. This suggests that the Bank would consider further easing if major central banks loosen rates more than expected and/or a further deterioration in global trade relations threatened the economic outlook.

The next monetary policy meeting is scheduled for 10 October.

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