Serbia maintains rate, inflation forecast in target range

    Serbia’s central bank kept its key policy rate at 4.0 percent, as expected, saying its May inflation report, which will be published on May 19, shows that inflation is projected to remain within the central bank’s tolerance band in the next two years.
     The National Bank of Serbia (NBS), which has maintained its rate since cutting it to the current level in July 2016, added its policy decision was also guided by the effect of past monetary easing.
      In its previous inflation report from February, the central bank forecast that inflation would enter its tolerance band in the first quarter of this year and remain within that range until the end of 2018, helped by rising prices of food, oil and cigarettes.
     This year the central bank targets inflation of 3.0 percent, plus/minus 1.5 percentage points.
     The central bank also forecast in February that Serbia’s economy would expand by 3.0 percent this year, up from 2.7 percent in 2016, and then by 3.5 percent in 2018.
     In the first quarter of this year Serbia’s economy grew by an annual rate of 1.0 percent, down from 2.5 percent in the fourth quarter.
     Starting in May 2013 the NBS embarked on an easing cycle that concluded in July 2016 after rate cuts that totaled 7.75 percentage points as inflation gradually decelerated from close to 13 percent in October 2012.
      Serbia’s inflation rate accelerated to 4.0 percent in April from 3.6 percent in March as prices rose for fruits and vegetables due to adverse weather while the cost of fresh meat was higher than seasonally expected.
      The NBS expects these one-off price hikes to drop out of the annual comparison so inflation will be below its current level early next year and the remain steady until the end of its projection period.
       Illustrating that headline inflation has been affected by temporary factors, the central bank said core inflation was 2.0 percent in April and has been low and relatively stable.
       After depreciating in the second half of 2015, Serbia’s dinar was relatively steady through 2016 but has been trending firmer in the last month. The central bank has often stepped into the market in recent years and dealers reported seen it buying euros in late April at 122.95 to the euro.
     Today the dinar was trading at 123.13, hardly changed from 123.07 at the start of the year.

     The National Bank of Serbia issued the following statement: