Central bank keeps key policy rate at 3.5 percent

Central bank keeps key policy rate at 3.5 percent

"As assessed by the NBS Executive Board, inflationary pressures remain subdued, as confirmed by the slowdown in year-on-year headline and core inflation over the past months, to 2.8 percent and 1.4 percent in October. That inflationary pressures are subdued is also indicated by the fact that inflation expectations of the financial and corporate sectors continue to move within the NBS target tolerance band," the bank said in a statement, and added:

"Since early 2017, fiscal trends have been more favorable than expected and the risk premium has fallen to its new low on record for Serbia, reflecting not only global factors, but also the strengthening of domestic macroeconomic fundamentals and a more favorable outlook for the period ahead. Another drag on inflation comes from lower dinar-denominated import prices."

The NBS Executive Board expects inflation to continue to move within the target tolerance band of 3.0±1.5 percent - in the first half of 2018, inflation is likely to move below the target midpoint, reflecting the low base for prices of petroleum products and other products which recorded one-off hikes early this year, while the expected rise in domestic demand will work in the opposite direction, the NBS said.

The Executive Board "carefully monitors developments in the international environment, primarily in the global financial market and world prices of primary commodities," it continued, adding that "uncertainty in the international financial market over the divergence of monetary policies of the leading central banks – the Fed and the European Central Bank, still prevails, which may affect global capital flows towards emerging economies, including Serbia."

"In addition, uncertainty surrounds also the movements of world prices of primary commodities, especially world oil prices, which recorded moderate growth in the previous months. Nevertheless, the Executive Board points out that the resilience of our economy to potential negative impacts from the international environment has increased, owing to the strengthening of domestic macroeconomic fundamentals and a more favorable outlook for the period ahead," the NBS said.

The next rate-setting meeting will be held on January 11.