The decision by the National Bank of Serbia (NBS) was expected by about half of the economists while the other half expected a rate cut as inflation remains well below the central bank's target of 4.0 percent, plus/minus 1.5 percentage point.
In February the NBS surprised financial markets by cutting its rate by 25 basis points following cuts totaling 350 points in 2015. Since then the central bank has maintained its rate.
But NBS said the potentially adverse effect of external risks was moderated by domestic factors, notably narrower internal and external imbalances and by the European Central Bank's (ECB) accommodative policy stance.
Serbia's dinar depreciated against the euro between May 2013 and January 2015 but was then largely stable the rest of last year.
But it encountered another bout of weakness in January this year. Since then it has been trading sideways and was quoted at 122.5 to the euro today, down 0.9 percent since the start of this year.
Serbia's inflation rate eased to 0.4 percent in April from 0.6 percent in March but the central bank expects inflation to start rising gradually as of May and return to its target band early 2017.
Last month the central bank said it expected inflation to rise moderately in the second half of this year and return to the target bank late this year or early next year.
The executive board of the NBS adopted the May inflation report that will published on May 24 at a press conference in which the central bank said it would explain its policy decision in detail.
A new Serbian government is expected to be appointed in June following April's election.
The National Bank of Serbia issued the following statement:
"At its meeting today, the NBS Executive Board decided to keep the key policy rate unchanged at 4.25%.
Though inflationary pressures are low and macroeconomic fundamentals continue to improve, the Board assessed that persistent uncertainties in the international commodity and financial markets warrant caution in running monetary policy. The potential adverse effect of these external risks is moderated by domestic factors, notably by the narrowed internal and external imbalances, and to a degree, also by the ECB’s accommodative monetary policy stance.
Year-on-year inflation measured 0.4% in April. Inflation is likely to start rising gradually as of May and make its way back within the target tolerance band early next year.
Year-on-year inflation measured 0.4% in April. Inflation is likely to start rising gradually as of May and make its way back within the target tolerance band early next year.
At its meeting today, the NBS Executive Board adopted the May Inflation Report, which will be presented to the public on Tuesday, 24 May. On that occasion, monetary policy decisions and the underlying macroeconomic developments will be explained in detail.
The next rate-setting meeting will be held on 9 June."
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