June 9 (SeeNews) - Serbia's central bank, NBS, said on Thursday it has decided to hold the key repo rate at 4.25%, in line with market expectations, but is likely to cut it at its next meeting.
"In deciding to keep the policy rate unchanged, the Board took into consideration persistent uncertainty in the international commodity and financial markets, as well as the expected weakening of disinflationary pressures on account of global primary commodity prices in the coming period," NBS said in a statement.
"At the same time, the impact of external risks is moderated by domestic factors, primarily the achieved and expected further reduction in internal and external imbalances."
The recovery of global oil prices and the expected acceleration of eurozone inflation, as well as the speedier recovery of economic activity in Serbia, should contribute to the gradual increase of year-on-year inflation in the future, the NBS noted.
It reiterated it expects inflation, which reached a 15-month low of 0.4% in April, to return to its target band of 2.5%-5.5% at the beginning of next year and then continue to move at around 3%.
Analysts believe that the NBS is likely to cut the key repo rate later this year.
"Although we still expect one further cut, the central bank might wait for the government formation, which could happen only next week. This situation could keep investors in a cautious mood," Raiffeisen Research said in its daily note on Thursday.
"The Serbian central bank will likely keep rates on hold this week, but we still expect a 25bp cut in the second half," Erste Group Research said in a report earlier this week.
The NBS will hold its next rate-setting meeting on July 9.