Serbia’s central bank, NBS, decided on Thursday to hold the key repo rate at 4.0%, in line with market expectations, saying it took into account the effects of past monetary policy easing and the inflation outlook.
“The return of year-on-year inflation within the target tolerance band will be led primarily by the low-base effect of petroleum product prices and the gradual increase in aggregate demand at home and inflation abroad, while low food production costs will continue to hold inflation back for some time to come,” NBS said in a statement.
It noted that its decision was also guided by continuing uncertainties in the international commodity and financial markets and their impact on inflation and capital flows to emerging markets.
“However, the resilience of the Serbian economy to external shocks is now stronger than before as a result of consistent implementation of fiscal consolidation measures and structural reforms. Hence, fiscal and external imbalances have continued down and Serbia’s macroeconomic prospects have improved further,” NBS said.
In its CEE Daily note from Thursday morning, Raiffeisen Research said that NBS would likely keep interest rates unchanged “as rapid strengthening of domestic economy and credit growth may also boost inflation in the medium-term”.
Serbia’s annual consumer price inflation slowed to a 17-month low of 0.3% in June from 0.7% in May, according to the latest available statistics office data.
At its previous meeting, held last month, NBS cut the key repo rate by 0.25 percentage points to help inflation return to its target band of 2.5%-5.5% at the beginning of next year.
The NBS will hold its next rate-setting meeting on September 8.
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