NBS keeps key policy rate at 5.75 pct

BELGRADE - The National Bank of Serbia (NBS) Executive Board decided on Thursday to keep the key policy rate unchanged at 5.75 pct, as well as the deposit (4.5 pct) and lending facility (7.0 pct) rates, the central bank announced.

"The Board made the decision primarily in view of the actual and expected inflation, as well as factors from the domestic and international environment affecting its movements. Y-o-y headline inflation in Serbia slowed significantly in September - to 2.9 pct and then to 2.8 pct in October, mostly as a result of the Serbian Government’s Decree on Special Conditions for Trade in Certain Types of Goods. As of September, the Decree capped trade margins on food items and certain household cleaning products at 20 pct for a period of six months. The Board expects inflation to continue trending around the target midpoint as long as the Decree is in force, and to remain within the target tolerance band of 3±1.5 pct in the medium term. This should be facilitated by the announced adoption of systemic laws that will curb unfair merchant practices, as well as by the easing of cost-push pressures from the international environment, the effects of the dollar’s weakening against the euro, and the arrival of the new agricultural season, assuming that it turns out better than this year’s. The increase in disposable income and the low base from September this year will act in the opposite direction," the NBS said in a statement.

"The Executive Board emphasises that the NBS continues to support economic growth through the maintained relative exchange rate stability and the provision of more favourable credit conditions, thanks to the effects of past monetary policy easing, amendments to the Law on the Protection of Financial Service Consumers, and targeted measures aimed at improving borrowing conditions for low-income citizens and young first-time homebuyers. All these factors together have resulted in a double-digit y-o-y increase in lending activity to both corporates and households, which reached 12.8 pct in September.

Explaining its decision, the Executive Board stressed that a cautious monetary policy stance is still necessary as the situation in the international environment remains complex and unstable. Higher tariffs, rising protectionism and persistently uncertain global trade policies, together with heightened geopolitical tensions, continue to shape movements in global commodity and financial markets, keeping them volatile. In addition, geopolitical tensions and growing protectionism may have direct effects on domestic manufacturing output and exports, particularly when it comes to oil and base metals production. As for monetary policy decisions of leading central banks, the Fed lowered its key interest rates by 25 bp in October, following a similar reduction in September, and further rate cuts are expected in the coming period, primarily to support the labour market. The ECB, on the other hand, kept its rates unchanged in October, as in the previous month, and its monetary policy easing cycle appears to be nearly complete," the NBS also said.