The National Bank of Serbia decided to keep the key policy rate at the current level of 4% at today's meeting of the Executive Board.
In making the decision, the Executive Board took into consideration that inflation is expected to return within the target tolerance band towards mid-2017, the report says.
The inflation trend, the NBS estimates, should be led by the effects of past monetary easing and higher demand at home, as well as by a gradual recovery in global oil prices and inflation abroad.
On the other hand, the disinflationary impact of a further drop in prices of primary agricultural commodities and the resulting low food production costs owing to a good agricultural season will be felt for some time to come, the report adds.
The Executive Board advised caution in the conduct of monetary policy bearing in mind uncertainty in the international financial markets regarding future FED and ECB measures and their potential impact on global capital flows.
However, the successful implementation of fiscal consolidation and structural reforms, as well as the reduction of external imbalances, have strengthened the resilience of the domestic economy to potential adverse influences from the international environment. This is also confirmed by a sizable drop in the country’s risk premium to its nine-year low, the NBS notes.
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