Thursday, September 11, 2014

Serbia maintains rate, cites uncertain environment

    Serbia's central bank maintained its policy rate at 8.5 percent in light of the uncertain domestic and international environment and said it expects inflation to gradually return to its tolerance range by the end of the year.
    The National Bank of Serbia (NBS), which has cut its rate by 100 basis points this year, issued the following statement:

    At its meeting today, the NBS Executive Board decided to keep the key policy rate at 8.5%.
In keeping the rate unchanged, the Executive Board was guided primarily by the still present uncertainties in the domestic and international environment. Geopolitical tensions and the Fed’s reduced monetary accommodation can exert a significant impact on movements in the international money and capital markets, affecting in particular the emerging market economies. The current geopolitical tensions also dampen optimism in terms of the pace of recovery of the euro area and Serbia’s other important foreign trade partners. Lower external demand would probably lead to weaker export results and to a somewhat higher foreign trade deficit than anticipated earlier.   

The Executive Board expects that the adoption and implementation of the indispensable fiscal consolidation measures and structural reforms will have a positive effect on market expectations regarding the sustainability of our public finance, and thus on the country risk premium. This would help moderate the risks which at this point warrant a cautious monetary policy.
The Executive Board stated that year-on-year inflation is still below the lower bound of the target tolerance band (4±1.5%). Based on NBS projection, inflation will gradually return within the target tolerance band until the end of the year, supported primarily by the waning of the effects of the drop in prices of primary agricultural commodities and the anticipated revision of administered prices, notably electricity.
The next rate-setting meeting will take place on 16 October.


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