September 7 (SeeNews) - Serbia's central bank, NBS, said on Thursday it cut its key repo rate to 3.75% from 4.0%.
When taking this decision, the NBS board was guided by the lower inflation as well as the reduced medium-term inflation projection for both 2017 and 2018 made in August as compared to May, NBS said in a statement.
Low and stable core inflation at the level of 1.7% year-on-year in July, as well as inflation expectations of the financial and corporate sectors which are within the target tolerance band, suggest that inflationary pressures remain low. Fiscal developments have been significantly more favourable than expected since the beginning of the year, with an achieved surplus of around 2.1% of GDP at a consolidated level in the first half, NBS said.
Inflationary pressures were additionally reduced in the August projection, due to the lower import prices in dinars and decreased country risk premium, which reached its lowest level since it has been monitored for Serbia.
Factors that will also slow down inflation will be the high base of prices of oil products and the one-off price hikes of certain products and services in 2017. In the medium term, a gradual increase in the global prices of primary agricultural commodities and aggregate demand in Serbia will work in the opposite direction, the NBS said.
The inflation rate will remain within the target band of 1.5%-4.5% in the short term, the Serbian central bank said.
Serbia’s consumer prices rose by 3.2% year-on-year in July following an annual increase of 3.6% in June, according to the latest official data available. On a monthly comparison basis, consumer prices declined 0.4% in July, after edging up 0.2% in June.
Uncertainties in the international financial markets stem largely from the diverging monetary policies of the leading central banks, the Fed and ECB, which may impact capital flows to emerging economies, NBS said.
"However, inflation in the international environment has slowed down further in recent months. Despite the economic recovery, there are no signals of a potential rise in inflationary pressures on the demand side or that the leading central banks might tighten their monetary policies sooner," the Serbian central bank said.
NBS last changed the repo rate in July 2016, when it cut it by 0.25 percentage points to 4.0% to help guide inflation to the target band.
The NBS will hold its next rate-setting meeting on October 9.