The National Bank of Serbia (NBS), which has cut its rate by 50 basis points this year following cuts in July and February to boost inflation, added that today's decision also took into account the "persistent uncertainties in the international commodity and financial markets and their impact on inflation and capital flows to emerging market economies."
At today's meeting, the central bank's executive board adopted the August inflation report that will be published on Aug. 17.
The central bank said the return of inflation to its target range will be led by the low-base effect of petroleum prices and the gradual increase of domestic demand and inflation abroad, while low food prices will continue to keep inflation back for some time.
In its May inflation report, the NBS raised its 2016 growth forecast to between 2.3 percent and 2.5 percent from 1.8 percent projected in February.
Serbia's Gross Domestic Product grew by an annual 1.8 percent in the second quarter of this year, down from 3.5 percent in the first quarter.
The headline inflation rate eased to 0.3 percent in June from 0.7 percent in May and in its inflation report, the NBS had expected inflation to rise from May and then slowly return to its tolerance band of 2.5 percent to 5.5 percent, with a midpoint of 4.0 percent.
The National Bank of Serbia issued the following statement:
"At its meeting today, the NBS Executive Board decided to keep the key policy rate unchanged at 4 percent.
In so deciding, the Executive Board took into consideration the effects of past monetary policy easing and the inflation outlook for the period ahead. As the Executive Board assessed, 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.
In making the above decision, the Executive Board was also guided by persistent uncertainties in the international commodity and financial markets and their impact on inflation and capital flows to emerging market economies. 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, as confirmed by the projections of relevant international institutions. Looking ahead, it may also be expected that the risks from the international environment will be moderated by the more accommodative monetary policy stance of leading central banks.
At its meeting today, the NBS Executive Board adopted the August Inflation Report, which will be presented to the public on Wednesday, 17 August. On that occasion, monetary policy decisions and the underlying macroeconomic developments will be explained in detail.
The next rate-setting meeting of the Executive Board is scheduled for 8 September. "