The Executive Board of the National Bank of Serbia (NBS) has decided to keep the benchmark interest rate at 4% following an assessment of the risks associated with the relaxation of monetary policy, and the fact that, since the beginning of 2017, the inflation has been in the region of 3% (+/- 1.5) at which level is projected to stay in the following few years.
Last month, the bank cited pressures from abroad that could make investors shy away from emerging markets, including possible interest rate increases by the U.S. Federal Reserve, as reasons for keeping the rate steady. Although it sought rate cuts last year, the International Monetary Fund, which maintains a 1.2 billion-EUR three-year loan-deal with Serbia, changed its position in 2017, saying that the outlook depended on external developments.
In a statement, the bank said that inflation and uncertainties stemming from global financial and commodity markets were key reasons that motivated it to keep the rate unchanged. “The divergence of monetary policies of leading central banks will likely be additionally increased by the end of the year and therefore the uncertainty over their impact on global capital flows,” the bank said.
The dinar has lost 0.4% against the common currency so far this year, prompting the central bank to sell a total of 330 million EUR to prop it up. Inflation rose to 3.2% in February, up from 2.4% a month earlier, reaching the centre of the 2017 target band of 1.5 to 4.5%. In the statement, the bank said that the rise of inflation was seasonal and related with the recovery of global oil prices and an increase of prices of agricultural products due to unusually cold winter.
(Nova Ekonomija, NASDAQ, 14.03.2017)
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