Serbia: NBS holds policy rate steady at 4.00% in May
May 12, 2017
At its 12 May monetary policy meeting, the Executive Board of the National Bank of Serbia (NBS) left the key policy rate unchanged at 4.00%, where it has been for ten months. Market analysts had expected the Bank to keep the policy rate steady, despite the recent increase in inflation. The rate stands at its lowest level since the Bank introduced its inflation-targeting mandate in 2006.
In holding off on a change to the policy rate—rather than cutting it further in an attempt to shore up economic activity—the NBS expects to keep a lid on rising inflation. Steadily inching up since mid-2016, recent inflation—having hit an over-three year high in April—has been partially due to one-off seasonal factors. As these transitory factors are dispelled in the short term, the current policy rate should keep inflation moving within the Bank’s target range of 3.0% plus/minus 1.5 percentage points, where it has been moving since December. Core inflation has also been relatively stable in recent months, further suggesting that changes to the policy rate were unwarranted in May.
The NBS took a cautious stance toward ongoing global developments in its statement, but did not offer any strong forward guidance. Downside risks to the economy are largely external and, as such, the Bank plans to continue with its wait-and-see approach in regard to uncertainty in global financial and energy markets. While diverging global monetary policy—with the U.S. Federal Reserve, in particular, raising rates—could soon threaten to impact capital flows into the country, the Bank was optimistic that an improving balance sheet will permit the economy to weather any adverse impacts.
The next monetary policy meeting is scheduled for 8 June.
Author: Christopher Thomas, Economist