Last week in global monetary policy, Serbia took advantage of the relative calm in financial markets to return to its easing campaign despite the simmering conflict in the Ukraine and the ongoing tapering of quantitative easing by the U.S. Federal Reserve.
The Bank of Serbia (NBS) puts its easing cycle on hold in January and has maintained rates for the last four months due to a bout of volatility in global financial financial as investors adjusted to the start of the Fed’s reduction in asset purchases.
Political and social unrest in Ukraine, followed by the annexation of Crimea by Russia in March, then added geopolitical tensions to the mix, convincing the NBS that it should maintain high enough interest rates to ensure that global investors wouldn’t suddenly abandon the dinar financial.
But buoyed by falling inflation and a convincing parliamentary victory by the Serbian Progressive Party and its commitment to deficit cuts, the dinar was suddenly attracting investors and the NBS was forced to intervene on at least six occasions to limit its gains.
The Serbian central bank’s relief was almost audible last week as it stated that:
“No negative impact on the country’s risk premium and external financial has so far resulted from the Fed’s QE tapering and geopolitical tensions arising from the Ukrainian crises.”
Serbia’s policy rate was cut by 50 basis points to 9.0 percent, following 2013’s cut of 175 basis points, as inflation fell to 2.3 percent in March and then 2.1 percent in April, below the central bank’s tolerance range of 2.5 to 5.5 percent inflation.
Apart from Serbia, 14 central banks maintained their policy rates last week though both Malaysia and the Philippines are now clearly on a policy tightening path.
Bank Negara Malaysia (BNM) maintained its Overnight Policy Rate at 3.0 percent but warned that financial imbalances were brewing and said that:
“Going forward, the degree of monetary accommodation may need to be adjusted to ensure that the risks arising from the accumulation of these imbalances would not undermine the growth prospects of the Malaysian economy.”
