Serbia keeps key rate, sees inflation in target range

    Serbia's central bank left its key policy rate at 4.0 percent, saying it expects inflation to enter its tolerance range early next year due to rising domestic demand, helped by its past rate cuts, and a gradual rise in global oil prices and inflation.
     However, low food prices will continue to exert disinflationary pressures, said the Bank of Serbia (NBS), which has cut its rate by 50 basis points this year.
    As in the past, the NBS also underlined that "persistent uncertainties in the international financial and commodity markets also mandate caution in monetary policy conduct."
    Serbia's inflation rate rose to 1.5 percent in October from 0.6 percent in September, hitting the lower limit of its 2017 target range of 3.0 percent, plus/minus 1.5 percentage points.
    Last month the central bank lowered the inflation mid-point target to 3.0 percent from 4.0 percent.
    Serbia's economy grew by an annual rate of 2.6 percent in the third quarter, up from 1.9 percent in the secondquarter while the unemployment rate eased to 13.8 percent from 16.6 percent.
    Last month the central bank's vice-governor, Veselin Pjescic, was quoted as saying the central bank had room to lower its key rate.


    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 expects inflation to remain low and stable, moving within the target tolerance band as of early 2017 (3.0%±1.5 pp). Inflation will enter the target tolerance band owing to the effects of past monetary policy easing, rising domestic demand, and the gradual recovery of global oil prices and inflation in the international environment, notably the euro area as Serbia’s most important foreign trade partner. In contrast, relatively low food production costs will continue to generate disinflationary pressures for some time yet. 

Persisting uncertainties in the international financial and commodity markets also mandate caution in monetary policy conduct. As for the international financial market, the uncertainties pertain to the pace of the Fed’s monetary policy normalisation and the continuation of the ECB’s quantitative easing programme, as well as their impact on global flows of capital. However, the Executive Board underlined that successful implementation of fiscal consolidation and structural reforms, as well as the narrowing of external imbalances, are helping to improve the Serbian economy’s macroeconomic prospects and boost its resilience to negative shocks from abroad. 

The next rate-setting meeting will be held on 12 January 2017."

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