Serbia: NBS holds policy rate steady in June
June 8, 2017
At its 8 June 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 eleven months. Market analysts had expected the Bank to keep the policy rate steady, despite the recent uptick in inflation. The rate stands at its lowest level since the Bank introduced its inflation-targeting mandate in 2006.
In maintaining the policy rate as is, the NBS expects to keep a lid on rising inflation. The reason for higher inflation in recent months, however, has been a number of one-off seasonal factors, mostly the result of adverse weather conditions. 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 since December. On top of this, core inflation has been relatively stable in recent months, suggesting that changes to the policy rate were in fact unwarranted in June.
Without offering 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 and energy markets. With the U.S. Federal Reserve hiking rates, the Bank has been clear about the possibility of capital flight should investors begin to seek higher returns elsewhere. 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 July.
Author: Christopher Thomas, Economist