Central bank keeps key policy rate at 3 percent

In making this decision, the Executive Board primarily took into account the outlook for inflation and its factors going forward, as well as the effects of past monetary policy easing, the central bank has announced.

Inflationary pressures remained low even in conditions of strong economic growth. Inflation has been low and stable for five years straight - it measured 1.9 percent y-o-y in November and, according to the Serbian Statistical Office, it averaged 2.0 percent for the whole of 2018. In the coming period, inflation is expected to remain stable within the target tolerance band (3.0±1.5 ), its movements mainly reflecting the steady rise in aggregate demand. Both the financial and corporate sectors expect that the achieved price stability will be maintained in the medium term, as signalled by their inflation expectations anchored around the 3 percent midpoint for both one and two years ahead, the NBS said in a press release.

The Executive Board "judges that caution in monetary policy conduct is still mandated, primarily because of developments in the international environment. "

This year we are likely to see further monetary policy normalization by the world's leading central banks, the Fed and the ECB, which could affect capital flows to emerging markets. Despite the decline recorded in the closing months of 2018, the global oil price remains an inflation factor that urges caution. Uncertainty in the international financial market also stems from protectionism in international trade and geopolitical risks, which could dampen investor sentiment, the bank added.

Nevertheless, the Executive Board stresses that the resilience of our economy to potential negative effects from the international environment has increased,...