Thursday, April 7, 2016

Serbia holds rate, sees moderate rise in inflation in H2

    Serbia's central bank left its key benchmark rate steady at 4.25 percent, saying it was maintaining a "cautious monetary policy stance" and its current monetary expansion would lead to a moderate rise in inflation in the second half of this year before it returns to its target range late this year or early in 2017.
    The guidance by the National Bank of Serbia (NBS) indicates that the central bank is pushing back its expectation for a rise in inflation slightly as in March it said it expected inflation to rise from the middle of this year.
    In February the central bank surprised financial markets by cutting its rate by 25 basis points following rate cuts totaling 350 points in 2015.
   The central bank said its monetary policy "should remain cautions," mainly due to international risks with uncertainty surrounding the price of oil and other commodities, geopolitical risks and the divergent monetary policies of major central banks.
    Serbia's inflation rate eased to 1.5 percent in February from January's 1.5 percent, well below the bank's target of 4.0 percent, plus/minus 1.5 percentage point.

    The National Bank of Serbia issued the following statement:

"The NBS Executive Board decided today to keep the key policy rate unchanged at 4.25%.  
The Executive Board assessed that inflationary pressures are low.
However, the current degree of monetary expansion provides for a low and stable inflation in the medium term and a gradual recovery in economic activity.

Inflation is expected to rise moderately in the second half of the year and return within the target band late this or early next year. 

Monetary policy should remain cautious, primarily because of developments in the international environment. Uncertainties are particularly pronounced in respect of movements in prices of oil and other primary commodities in the world market, geopolitical risks and divergent monetary policies of the leading central banks.

Investors’ risk appetite and cash flows towards emerging economies, including Serbia, could be negatively affected by the slowdown in the global economy and normalisation of the Fed’s monetary policy. On the other hand, the impact of external risks should be moderated by the ECB’s monetary accommodation and domestic factors, notably the narrowing of internal and external imbalances.

The next rate-setting meeting will be held on 17 May."


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