The National Bank of Serbia (NBS) lowered its 2017 inflation target to a midpoint of 3.0 percent from 4.0 percent around a range of 1.5 percentage points.
"Inflation is expected to stay low and stable, moving within the new target band from early this year," said the NBS, which cut its rate by 50 basis points in 2016.
Serbia's inflation rate rose slightly to 1.6 percent in January from 1.5 percent in the previous two months and the central bank expects the increase to be supported by a recovery in oil prices, rising domestic demand and a general rise in international prices.
On the other hand, low food production cost should continue to generate disinflationary pressures for some time, the central bank added.
As usual, the NBS added that uncertainties in international financial markets and oil prices "mandate caution in monetary policy conduct."
The central bank has been been supporting the dinar in foreign exchange markets this year and said on Feb. 3 that it had sold 315 million euros so far this year to "absorb excessive daily oscillations."
The dinar was trading at 123.8 to the euro today, little changed from 123.1 at the start of the year.
The National Bank of Serbia issued the following statement:
"In its meeting today, the NBS Executive Board decided to keep the key policy rate at 4.0%.
In making the decision, the NBS Executive Board was guided by the new medium-term inflation projection, the effects of past monetary policy easing and the fact that the inflation target has been lowered to 3.0%±1.5 pp as of early 2017. Inflation is expected to stay low and stable, moving within the new target band from early this year. Such movement in inflation should be supported primarily by the recovery of global oil prices and inflation in the international environment, as well as rising domestic demand. On the other hand, relatively low food production costs should generate disinflationary pressures for some time yet.
The NBS Executive Board assessed that the uncertainties in the international environment, mostly in terms of movements in global oil prices and developments in the international financial market, mandate caution in monetary policy conduct. The monetary policies of the leading central banks have diverged still further, thereby increasing the uncertainty regarding their impact on global capital flows. However, the Serbian economy’s resilience to potential adverse impacts from the international environment has improved owing primarily to better macroeconomic prospects, most notably accelerated economic growth coupled with further narrowing of internal and external imbalances.
In today’s meeting, the Executive Board adopted the February Inflation Report which will be publicly presented on Wednesday, 22 February, when monetary policy decisions and underlying macroeconomic developments will be discussed in more detail.
The next rate-setting meeting will be held on 14 March 2017."
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