Easing by National Bank of Serbia

October 18, 2013

The Executive Board agreed to its third interest rate cut within five months today, citing lower, in-target inflation and reduced expected inflation.  The policy interest rate was reduced by 50 basis points to 10.5%.  Cuts of 50 bps in May and 25 bps in June were made earlier.  The rate had been at 11.75% following a 25-bp hike in February 2012 until the aforementioned first easing in May 2012.

A statement from officials cited several disinflationary developments: monetary policy measures, the fall in primary agricultural commodity prices, relative stability of the dinar and low aggregate demand.  CPI inflation fell from 7.3% in August to 4.9% in September and is now below the 2.5-5.5% target range ceiling.  “the Executive Board was also guided by reduced risks associated with fiscal developments, following the announcement of fiscal adjustment measures.”  A hike planned for January in value added taxation is projected to have minimal effect on inflation.  The measure of expected inflation shows containment.

Analysts had been divided about how much the interest rate would be cut and indeed whether there would even be an easing at this month’s meeting.  The Executive Board next meets November 7.

Copyright 2013, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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