After reviewing current economic developments at its meeting today, the NBS Monetary Policy Committee decided to maintain the policy rate at 9.5 percent and assessed that the success in respect of inflation target achievement will provide room for further monetary policy relaxation.

The MPC also adopted a new Decision on Banks’ Required Reserves with the National Bank of Serbia, effective as of 18 March 2010 that will streamline and lower the reserve requirement on both dinar and foreign exchange liabilities. The present reserve requirement regime is overly complex, with a large number of exemptions and deductions, causing the effective reserve requirement rate to significantly deviate from the statutory rates. With the enactment of the new Decision, the NBS expects to reclaim the ability to use reserve requirements as an effective policy tool.

The new Decision changes and expands the required reserve base by way of reducing the number of exemptions from foreign currency reserve requirements, and at the same time, significantly lowers the reserve requirement ratios – from the present 10 to 5 percent on the dinar base, and from the present 40 and/or 45 to only 25 percent on the foreign currency base.

The new reserve requirement ratio on foreign currency deposits will be phased in gradually over 2010, and any excess amount of allocated required reserves will be returned to banks in three monthly instalments beginning from February 2011. Effectively, a one year transition period is envisaged for the introduction of the new regime. At the same time, measures will be taken to stimulate deposit accumulation, foreign borrowing and lending by banks.

The MPC has also adopted amendments to the Decision on Special Facilities Supporting the Country’s Financial Stability, aligned with the new Decision on Required Reserves and retaining facilities for banks signatories to the Financial Stability Support Programme. Further, in line with agreements reached at the meeting of the European Bank Coordination Initiative, held on 26 February 2010 in Vienna, the above amendments envisage lowering of banks’ exposure to Serbia to 80 percent of current levels, effective as of April 2010