The National Bank of Serbia (NBS), which lowered its rate by 50 basis points in 2016, added that international developments still mandate caution as monetary policies of leading central banks are likely to diverge further by the end of the year, increasing the uncertainty of global capital flows.
Serbia's inflation rate jumped to 3.2 percent in February from 2.4 percent in January to the highest rate since September 2013 but this was largely due to one-off factors, as in many other countries, as higher energy prices push up prices while there was a seasonal increase in fruit and vegetable prices due to adverse weather early this year.
However, headline inflation still remains within the central bank's new target range of 1.5 to 4.5 percent around a 3.0 percent midpoint, and it said core inflation of 1.7 percent in February and January reflect "persistently low inflationary pressures."
Serbia's dinar has been relatively stable against the euro since February after depreciating in January and was trading at 123.9 to the euro today, down 0.7 percent this year.
Serbia's Gross Domestic Product grew by an annual rate of 2.5 percent in the fourth quarter of last year, below the third quarter's 2.8 percent rate, and is expected to accelerate further during the year on rising investment, exports and employment.
The International Monetary Fund (IMF) projects 2017 growth of 3.0 percent, up from 2.8 percent in 2016 as the fiscal deficit narrowed to 1.4 percent of GDP, the lowest since 20005, and general government debt declined to 74 percent of GDP.
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%.
In making the decision, the NBS Executive Board was guided by inflation factors, the effects of past monetary policy easing and the fact that inflation has been moving within the target tolerance band of 3.0%±1.5 pp since early 2017, where it is expected to stay in the period ahead.
Y-o-y inflation equalled 3.2% in February, largely reflecting one-off factors. Similarly to other countries, consumer price growth was driven by the recovery of global oil prices in the second half of 2016 and a seasonally higher increase in fruit and vegetable prices caused by adverse weather conditions early this year. Core inflation of 1.7% y-o-y in January and February also reflects the persistently low inflationary pressures.
The NBS Executive Board will continue to closely monitor international developments which mandate caution, most notably with regard to movements in the international financial market and global oil prices. Monetary policies of the leading central banks are likely to diverge still further by the end of the year, thereby increasing the uncertainty regarding their impact on global capital flows. Nevertheless, the NBS Executive Board underlined that the resilience of the Serbian economy to adverse impacts from the international environment has increased owing to more favourable macroeconomic prospects, primarily lower fiscal and external imbalances at home.
The next rate-setting meeting will be held on 11 April 2017."
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