Monday, July 10, 2017

Serbia maintains rate as inflation seen in target range

     Serbia's central bank left is key policy rate at 4.0 percent, unchanged in the last year, and said it expects inflation to continue to move within its inflation target tolerance range of 3.0 percent, plus/minus 1.5 percentage points, "in the period ahead."
      The National Bank of Serbia (NBS), which last changed its rate in July 2016 when it cut it to the current level, also said inflationary pressures remain low, as reflected by stable core inflation and inflation expectations in the financial and corporate sector that are within the inflation target.
     The central bank's comment on the inflation outlook is only slightly different to that in June when it said it expected inflation to move within its target tolerance band "in the next two years."
     Serbia's inflation rate eased to 3.5 percent in May from 4.0 percent in April, with the NBS saying changes in inflation since the start of this year has been affected by the recovery of oil prices in the second half of last year along with the prices of vegetables and firewood that were higher than expected due to adverse weather.
      The central bank expects its inflation target to be met due to the recovery of domestic demand and inflation abroad, and the high base effects from the prices of petroleum products.

     The National Bank of Serbia issued the following statement:

"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."


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