Serbia: NBS holds policy rate steady in July
July 10, 2017
At its 10 July 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 stood for a year. Market analysts had expected this decision, given the steady movement of core inflation within the Bank’s tolerance band and despite the recent uptick in inflation. The rate stands at its lowest level since the Bank introduced its inflation-targeting mandate in 2006.
Core inflation has been relatively stable in recent months, and in maintaining the policy rate as is the NBS expects to keep a lid on any pronounced changes. Moreover, as a number of one-off seasonal factors—mostly the result of adverse weather conditions—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 since December. On top of this, the currency has been appreciating steadily since the outset of the year and is expected to continue doing so in the coming months, further suggesting that a change to the policy rate would have been unwarranted in July.
In the absence of any strong forward guidance, the NBS took a cautious stance on ongoing global developments in its statement. Given that downside risks to the economy are largely external, the Bank plans to continue with its wait-and-see approach with regard to heightened uncertainty in global financial markets. With the U.S. Federal Reserve hiking rates, the Bank has been clear about the possibility of capital flight. That said, even with the policy rate at its lowest in more than a decade, the Bank was optimistic that an improving balance sheet will permit the economy to weather any such adverse impacts.
The next monetary policy meeting is scheduled for 10 August.
Author: Christopher Thomas, Economist