The NBS Executive Board kept today its key monetary policy rate unchanged at 4.0% for a sixth consecutive month. The Board assessed that persisting uncertainty in the international commodity and financial markets necessitate cautious monetary policy, primarily given global commodity price developments, as well as the pace of normalization of Fed’s monetary policy and its impact on global capital flows. The Board said that risks stemming from the international environment would be mitigated by ECB’ monetary policy easing. It also assessed that successful implementation of fiscal consolidation and structural reforms as well as narrowing of external imbalances, along with economic growth led mainly by investments and exports, have improved the economy’s macroeconomic outlook and its resilience to potential external shocks.
The Board said that while making the decision it was guided by inflation factors, the effects from the past monetary policy easing and the fact that the inflation target has been lowered as of the beginning of the year to 3.0±1.5%. The central bank expects inflation to remain low and stable, moving within the target band at the beginning of 2017 on the back of recovery of domestic demand and global oil prices, but also due to inflation in the international environment, mainly in the Eurozone. On the other hand, the relatively low food production costs will continue to act disinflationary for some time, the bank said.
CPI inflation inched up to 1.6% y/y in December higher than the 2016 average of 1.2%, according to the just published data by the Serbian statistical office. Another factor that could explain the cautious stance of the central bank is the upcoming elections in the spring. The next monetary policy sitting is scheduled for Feb 14.