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BELGRADE (Serbia), May 14 (SeeNews) - Erste Group expects Serbia's central bank, NBS, to keep its key repo rate unchanged at 3% throughout the year, the Austria-based banking group said.
The NBS will keep the key rate at the current level throughout the year, as the inflation base effect is expected to gradually fade, while the solid economic performance, mostly supported by rising domestic demand, will continue, Erste said in a short note on the country published last week.
Labour market conditions also indicate a gradual acceleration of the inflation figure down the road, with rising employment, private wages and public wages playing a key role, Erste said. "In addition, we expect that the NBS wants to keep its manoeuvring space to react in the event of additional stronger pressures on the dinar."
The NBS will closely monitor the reactions of foreign investors to ECB and Fed moves this year, as foreign investors play an important role on the Serbian domestic debt market, Erste added.
NBS said it has decided to keep its key repo rate unchanged at 3.0%, taking into account that inflationary pressures are still low, the central bank said in a statement on Thursday. The NBS executive board was primarily guided by the expected movement in inflation and its underlying factors going forward, and the effects of past monetary policy easing, the central bank said.
The central bank cut the key repo rate by 0.25 of a percentage point to 3.5% in October and to 3.25% in March to help guide inflation to the target band. In April, the key repo rate was additionally cut to 3%.