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Serbia maintains rate, sees low and stable inflation

Thursday, January 12, 2017 5:58
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    Serbia’s central bank maintained its key policy rate at 4.00 percent and confirmed that it still expects inflation to remain low and stable, and return to its target range from early this year.
    The National Bank of Serbia (NBS), which cut its rate by 50 basis points in 2016, added that its decision to keep the existing degree of monetary accommodation was guided by inflation, the impact of past monetary easing and the fact that the central bank lowered its 2017 inflation target to 3.0 percent from 4.0 percent. The target band was left unchanged at plus/minus 1.5 percentage points.
    As usual, the central bank also said that it was cautious in monetary policy decisions, referring to the “prevailing uncertainty in the international commodity and financial markets,” as well as the pace of normalization of U.S. monetary policy and its impact on global capital flows.
     It added that these international risks were mitigated by the monetary accommodation by the European Central Bank (ECB).
    Serbia’s inflation rate rose slightly to 1.6 percent in December from 1.5 percent in the previous two months while the exchange rate of the dinar has been stable in recent months.
    The dinar was trading at 123.9 to the euro today, down 2.0 percent since the start of 2016.
    Serbia’s Gross Domestic Product grew by an annual rate of 2.6 percent in the third quarter of last year, up from 1.9 percent in the second quarter.

    The National Bank of Serbia issued the following statement:

“At its meeting today, the NBS Executive Board decided to keep the key policy rate at 4.0%.
The Executive Board’s decision to keep the existing degree of monetary policy accommodation was guided by inflation factors, the effects of past monetary policy easing and the fact that the inflation target has been lowered to 3.0%±1.5 percentage points as of the beginning of 2017. The Executive Board expects that inflation will remain low and stable, moving within the target band from early this year. Such inflation movements will be aided by the recovery of domestic demand and movement in global oil prices, as well as by the gradual rise in inflation in the international environment, primarily in the euro area, which is Serbia’s key foreign trade partner. On the other hand, relatively low costs of food production will continue to be the source of disinflationary pressure for some time yet. 
As assessed by the NBS Executive Board, the prevailing uncertainty in the international commodity and financial markets mandates caution in the conduct of monetary policy – primarily given the prices of oil and other primary commodities in the global market, as well as the pace of normalisation of the Fed’s monetary policy and its impact on global capital flows. The risks emanating from the international environment will be mitigated by the ECB’s monetary accommodation. Also, successful implementation of fiscal consolidation and structural reforms, as well as the narrowing in external imbalances and economic growth led largely by investments and exports, have improved the economy’s macroeconomic prospects and strengthened its resilience to potential shocks from the international environment.
The next rate-setting meeting will be held on 14 February 2017.”


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