March 17 (SeeNews) - Serbia's central bank (NBS) said on Thursday it has decided to hold the key repo rate at 4.25%.
The executive board of the bank reckoned that the current expansionary monetary policy level is sufficient enough to allow moderate rise in inflation by the mid-year, bringing it to its target of 4% with a band of plus or minus 1.5 percentage points by the end of 2016 or the beginning of 2017, NBS said in a statement.
Slower global economy growth doesn't contribute to the stabilisation of the eurozone, which is the most significant foreign trade partner of Serbia, the bank said, defending its cautious monetary policy stance. Even more uncertainty comes from the price course of oil and other primary commodities on the global market, geopolitical risks and diverging monetary policies of the world’s leading central banks, it elaborated.
"The slowdown in the global economy coupled with the Fed’s monetary policy normalisation could lead to a rise in investor risk aversion, which could dampen capital flows to emerging economies, including to Serbia," the statement reads. "On the other hand, further monetary policy easing by the ECB in March this year should contribute to the mitigation of external risks."
At its previous rate-setting meeting, held on February 11, NBS cut its key policy rate by 0.25 percentage points to 4.25% on the back of low inflationary pressures based both on domestic factors and on lower cost pressures and demand side constraints from the international environment. Before that, the rate was maintained at 4.5% for fo0ur months in a row.
According to Raiffeisen Research, Serbia's c-bank call to keep the benchmark rate unchanged has more to do with current political uncertainty given the upcoming general election on April 24, than with external influences. Another rate cut could be expected after the elections.
The next rate-setting meeting of the NBS executive board will be held on April 7.