Key Policy Rate Kept on Hold
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, inflation projection and the effects of past monetary policy easing.
Since the start of the year, inflation has been moving within the target tolerance band. Similarly to other countries, inflation movements were led by the recovery of global oil prices as of the second half of 2016, as well as the prices of vegetables and firewood which were higher than seasonally expected due to adverse weather early this year. Reflecting a drop in these prices, in accordance with our expectations, year-on-year inflation fell to 3.5% in May. Inflationary pressures remain low, as confirmed by low and relatively stable core inflation, moving at around 2% year-on-year since early 2017, as well by financial and corporate sector inflation expectations trending within the target band both one- and two-years ahead.
The NBS Executive Board expects inflation to continue moving within the bounds of the target tolerance band of 3.0%±1.5 percentage points in the period ahead. According to expectations, inflation target will be achieved owing to the gradual recovery of domestic demand and inflation abroad, and the high base effect from the prices of petroleum products.
The international environment is still fraught with uncertainties as to the developments in international commodity and financial markets. Uncertainties also surround global primary commodity prices, particularly oil prices, which are under the impact of heightened geopolitical tensions. Uncertainties in the international financial market continue to stem largely from the diverging monetary policies of leading central banks, the Fed and the ECB, which may affect capital flows to emerging economies. As underscored by the NBS Executive Board, the resilience of Serbia’s economy to potential negative shocks from the international environment increased owing to the significant narrowing in internal and external imbalances and more favourable macroeconomic prospects.
The next rate-setting meeting will be held on 10 August 2017.