NBS raises key policy rate to 6.5 pct

BELGRADE - The National Bank of Serbia (NBS) Executive Board decided on Thursday to raise the key policy rate by 25 bp to 6.5 pct.

It also raised the deposit and lending facilities rates to 5.25 pct and 7.75 pct, respectively, the central bank said in a statement.

"In making such a decision, the Executive Board assessed that monetary conditions need to be moderately tightened further to prevent a rise in inflation expectations and ensure that inflation strikes a sustainable downward path and returns within the target tolerance band in the projection horizon. The pass-through of the hitherto key policy rate hikes onto the rates in the markets of money, loans and savings signals the efficiency of the monetary policy transmission mechanism through the interest rate channel.

The weakening of global cost-push pressures has continued, and global prices of energy, food and industrial raw materials are on a decline in y-o-y terms. However, the Executive Board believes that continued moderate tightening of monetary policy is still necessary given that inflation at the global level is showing signs of greater resilience than anticipated. Though inflation is gradually declining in many countries, it is still relatively high. Caution is also mandated by core inflation, which is receding at a slower pace than headline in many countries, due to the elevated inflation expectations and labour market factors, most of all further wage growth. This means that the struggle of central banks with inflation is not yet over and that an increase in policy rates of the world's leading central banks can be expected in the coming period as well," it said.