Serbia’s central bank left its key policy rate unchanged at 3.0 percent for the 12th consecutive meeting by its executive board, confirming it expects inflation to remain stable within its target range.
The National Bank of Serbia (NBS), which has maintained its rate since ending a 5-year easing cycle in April 2018, added medium-term inflation expectations in the financial and corporate sectors also see inflation within its target range of 3.0 percent, plus/minus 1.5 percentage points.
Serbia’s inflation rate has been low and stable for the last 6 years though it rose to 2.4 percent in February from 2.1 percent in January, the highest rate since August last year on higher prices for food and on-alcoholic beverages, recreation and culture.
As in March, the bank’s board said the slowdown in global economic growth, the normalization of monetary policy by the Federal Reserve and the European Central Bank will be slower than expected and it is uncertain to what extent this process will differ from market expectations, which may trigger volatility in the flow of global capital.
Though trade tensions have eased, NBS said protectionism and geopolitical tensions persist, making developments in commodity and financial markets uncertain, mandating caution in the conduct of its monetary policy.
Serbia’s economy slowed in the second half of 2018 but NBS expects growth this year to be led by domestic demand, such as investment and consumption, while foreign direct investments, which has more than fully covered the current account deficit for more than 4 years and hit 3.2 billion euros in 2018, will continue to reduce external balances.
Serbia’s gross domestic product slowed to annual growth of 3.4 percent in the fourth quarter of 2018 from 4.1 percent in the third quarter and in its February inflation report the NBS forecast growth in 2019 of 3.5 percent before accelerating to 4.0 percent in 2020, led by investments, exports and sustainable growth in household consumption.
Inflation is projected to slowly rise toward the midpoint of the target range in coming months as the effects of past appreciation of the dinar wane and higher fruit and vegetable prices, the regular adjustment of excise taxes on cigarettes and the increase in utility prices.
But a drop in petroleum product prices due to the drop in global oil prices in late 2018 and a season fall in the prices of travel and fresh meat will have disinflationary pressures.
As in 2018, the NBS steps into the foreign exchange market on occasions, including last week, buying euros to keep the dinar from rising too much. The NBS maintains the dinar in a managed float against the euro.
The NBS has been reported by dealers to purchase euros when the dinar rises below 118 to the euro and today the dinar was trading at 117.93 to the euro, up from 118.15 at the start of the year.
The National Bank of Serbia issued the following statement:
“At its meeting today, the NBS Executive Board voted to keep the key policy rate on hold, at 3.0%.