The benchmark interest rate was cut by 25bps to help lessen the disruption caused by the Coronavirus outbreak.

Yesteday, the National Bank of Serbia’s (NBS) Executive Board voted to cut the key policy rate by 25bps, further to 1.5%, in order to alleviate the negative effects of the Covid-19 on economic activity, while at the same time ensuring that inflation remains within the bounds of the target in the medium term. As a reminder, NBS already cut their benchmark rate in March by 50bps to 1.75%, so this decision does come as a surprise to the markets.

The Executive Board’s decision on further monetary policy accommodation is based primarily on the fact that indicators from the international environment signal that the negative effects of the virus on global economic growth are stronger than expected, which has also reflected on developments in the international commodity and financial markets and the decisions of central banks and governments of countries worldwide.

The Executive Board highlights that Serbia faced this crisis in a much more favourable position, with a growth rate of over 4%, low and stable inflation for seven years in a row, eliminated fiscal imbalance and a much reduced external imbalance, and foreign exchange reserves at their highest level on record, which created space for further monetary and fiscal policy easing during the crisis period, without threatening macroeconomic stability.