May 7 (SeeNews) - Serbia's central bank, NBS, may cut its key repo rate to 1.25% next month after deciding to hold it unchanged at 1.5% on Thursday, Erste Bank Group said.
"We would not be surprised to see another 25bp cut on its next meeting in June, given the general desire of the central bank to make funding, through this tough economic period, as cheap as possible," Erste said in an instant comment of the NBS decision.
It makes sense for the central bank to ease the rate further, as inflation is falling below the lower part of the 1.5%-4.5% target band due to the low prices of commodities and the weak aggregate demand amidst the coronavirus crisis, while the stable foreign exchange rate is another factor supporting such a move, Erste said.
Serbia's central bank said on Thursday it has decided to hold its key repo rate at 1.5%. In making this decision, the central bank was guided by the monetary policy measures previously taken to mitigate the negative effects of the coronavirus crisis, the NBS said.
The inflation is likely to move around the lower end of the 1.5%-4.5% target band until the end of 2020 before gradually approaching the target midpoint in the medium term under the impact of lower aggregate demand and import prices, the central bank said.
Serbia's consumer prices rose by 1.3% year-on-year in March, after growing by 1.9% in February, official statistics show. On a monthly comparison basis, Serbia's consumer price index (CPI) fell by 0.1% in March, after rising by 0.6% in February, according to data by the national statistical office.
The NBS also said it will continue to closely monitor global trends and their impact on the Serbian economy and react in a timely manner to preserve the achieved price and financial stability and contribute to the growth of our economy on a sustainable basis.
In the conditions of lower external demand and downtime or interruptions in certain activities, the negative effects of the crisis will be most visible in the second quarter, but the recovery of economic activity will follow later in the year, the central bank added.
The central bank cut its key repo rate to 1.5% from 1.75% in April to counter the adverse economic effects of the coronavirus outbreak.
The NBS will hold its next rate-setting meeting on June 11.