Serbia’s central bank kept its key policy rate at 3.50 percent, as expected, confirming that it still expects inflation to move within its target tolerance band although it is likely to drop below the midpoint in the first half of this year due to the comparison with petroleum products that saw one-off hikes last year.
The National Bank of Serbia (NBS), which cut its late twice last year by a total of 50 basis points, added that domestic demand will work in the opposite direction on inflation, with today’s policy decision reflecting expected changes in inflation along with the impact of past policy easing.
Serbia’s inflation rate was steady at 2.8 percent in November and October, and was assessed to rise to 3.0 percent in December, the midpoint of the bank’s target range.
At its December meeting the central bank’s executive board confirmed its inflation target of 3.0 percent, with a tolerance range of plus/minus 1.5 percentage points, until 2020.
The NBS, which in recent weeks has been supporting the dinar in the foreign exchange market, said uncertainty in international financial market continues to prevail due to the divergence of monetary policies by leading central banks and this is affecting global capital flows towards emerging market economies, including Serbia.
The prices of commodities, especially oil that has risen in recent months, also adds uncertainty.
The dinar has strengthened against the euro since March 2017 and the NBS was reported to have sold euros against the dinar on Monday and in the final week of 2017 around 118.50 and 118.15.
Today the dinar was trading at 118.8 to the euro, up 3.6 percent since the start of 2017. The NBS keeps the dinar in a managed float against the euro.
The National Bank of Serbia issued the following statement:
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