Central Bank decides on key policy rate: Has it remained consistent with last month's move?
The next rate-setting meeting will be held on August 8
![Narodna banka Srbije, BNS, Zgrada Narodne banke Srbije](https://xdn.tf.rs/2022/02/09/1na2551-460x0.jpg)
At today's meeting, the National Bank of Serbia (NBS) Executive Board voted for further monetary easing, cutting the key policy rate by 25 bp to 6%, and deposit and lending facility rates to 4.75% and 7.25%.
"In making the decision, the Board had in mind that inflation at home has been on a downward path for a number of months and that it returned within the target band in May, as projected by the NBS. It also took into account the expected movement of inflation and other macroeconomic indicators from the domestic and international environment going forward. Given a further reduction in global inflationary pressures and the hitherto disinflationary impact of restrictive monetary measures, the Board assessed that conditions are in place to continue to ease monetary policy by trimming the key policy rate," the NBS announced.
The statement added that, though somewhat more gradually than previously expected, global inflation continues to slow down.
"The majority of central banks forecast that inflation in their countries will return within the bounds of the target tolerance band in H2 2024 or H1 2025. Accordingly, the Executive Board expects a further slowdown in the prices of the goods and services that we import. The ECB trimmed its main rates in June, and market participants believe that a new cut could come about at the end of the year," the NBS said, adding:
"As for the Fed, one or two cuts of the federal funds rate are expected by the year’s end. The anticipated gradual decrease in the prices of euro-indexed borrowing in the local market, together with the NBS trimming the key policy rate, should gradually drive lending and domestic demand up, without threatening the downward inflation path. The Executive Board is aware that the relevant institutions project a mildly downward trend in global oil prices going forward and that growth in oil prices, which was occasionally present over the past months amid pronounced geopolitical tensions and a series of other factors, was temporary."
According to the statement, consistent with the Board's expectations, y-o-y inflation in Serbia returned within the target band in May, settling at 4.5%.
"The Board judges that inflation will continue to move within the 3±1.5% target band over the projection horizon, reflecting persistently tight monetary conditions, lower imported inflation and reduced inflation expectations. According to the SORS (Serbia Statistical Offcie) data, most real sector indicators continued recording favorable trends in April and May. The indicators for services and construction, as well as a faster than expected recovery of production following the Pancevo refinery overhaul, suggest that growth in Q2 might turn out even higher than estimated by the NBS.
This increases the likelihood of over-performance of the 2024 growth projected in May at 3.5%. Positive trends in the real sector are expected to extend in the remainder of the year, led by the rising domestic demand. Stronger consumption should be supported by the rise in real income on account of higher wages and pensions and by the fall in inflation, while fixed investment growth should be underpinned by the increased corporate sector profitability in recent years, a robust FDI inflow and substantial government capital expenditure, notably for investment in transport infrastructure. Though domestic demand will continue to drive growth going forward, the Board expects it to generate no major impact on inflation," the NBS said.
The central bank added that its Executive Board "will keep a close eye on domestic and international markets and that future monetary policy decisions will depend on incoming data, the outlook for inflation and its key factors, as well as on the assessment of the effects of monetary policy measures. Decisions will be made taking care of the maintenance of financial stability and favorable growth prospects."
The next rate-setting meeting will be held on August 8.
(Telegraf Biznis)
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