Serbia’s central bank kept its benchmark interest rate unchanged at 4 percent on Thursday as expected, amid uncertainty over US Federal Reserve policy and other economic developments abroad.
All 13 analysts and traders polled by Reuters this week and last said the Serbian bank would hold rates.
The Fed meets next week, and any US rate hike would weaken investor demand for Serbian and other emerging market assets.
The bank had left the rate, unchanged last month as it awaited signals on US monetary policy following Donald Trump’s presidential election victory.
In a statement, the bank said it decided to keep the rate unchanged because it expected inflation to stay within its target range of 1.5 to 4.5 percent as a recovery in inflation in the euro area would be balanced by low food production costs.
“The Executive Board expects inflation to remain low and stable, moving within the target tolerance band as of early 2017,” it said. “Persisting uncertainties in the international financial and commodity markets also mandate caution in monetary policy conduct.”
Outside influences outweighed the impact of subdued inflation, which has remained low throughout 2016. In October it stood at just 1.5 percent – the bottom of the bank’s target range. The Statistics Office is scheduled to release November inflation data on Dec. 12.
The bank, which cut benchmark rates by 25 basis points in July, has reduced its inflation target band for 2017 to between 1.5 and 4.5 percent from 2.5 to 5.5 percent.
The bank said its future policy moves would depend on monetary policy developments in the United States and the euro zone.
“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,” it said.
The International Monetary Fund said last month Belgrade was compliant with the terms of a 1.2 billion-euro ($1.29 billion) loan deal and said there was scope for a future rate cut.
Serbia’s economy has picked up this year on the back of structural reforms and the Fund expects it to grow by 2.7 percent. The 2017 draft budget sees gross domestic product growing by 3 percent, and the fiscal deficit narrowing further.
Serbia’s currency, the dinar, has also been stable, shedding just 0.13 percent since the last rate-setting meeting on Nov. 10.
