Serb central bank (NBS) decided on Jan 16 to leave its one-week key repo rate unchanged at 9.5% despite falling inflationary pressures, citing high external risks.
The CPI inflation quickened to 2.2% y/y in December from 1.6% y/y in November but remained below the lower bound of the NBS target tolerance band of 2.5-5.5%. Nevertheless, the NBS’s cautious monetary policy stance reflects potential risks emanating from the Fed’s decision on tapering the quantitative easing programme as of January, the bank said in a statement.
Inflation is projected to return within the target tolerance band in the coming period, the NBS also noted. Low aggregate demand and fiscal consolidation measures should continue to push the CPI index down.
Since May 2013, the NBS has reduced borrowing costs four times by a cumulative 225bps. Nonetheless, lending activity has faltered since the second quarter of the year due to falling corporate loans after the end of the government-subsidised lending programme in March. Serbia’s GDP growth is expected to slow to 1% this year from an anticipated 2% in 2013, reflecting falling domestic demand.
The next rate setting meeting of the NBS executive board will be held on February 13.
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