Executive Board of the National Bank of Serbia (NBS) decided to maintain the reference interest rate at 12.5 per cent, saying that inflation should reach its peak in April or May, after which it should start declining and fall within the limits of permitted deviation from the target rate in the first half of 2012.

The NBS Board adopted this decision on Thursday after revising recent economic developments and May inflation projections, the central bank released on Thursday.

Inflation will drop primarily because of the reduction in the cost pressures which led to the increase in food prices, granted the usual scale of crops in the agricultural season, and the low aggregate demand.

On April 7, the NBS decided to up the reference interest rate from 12.25 per cent to 12.5 per cent.

The next meeting of the NBS Executive Board will be held on June 9, when the Board should revise the reference rate and adopt a decision thereon.

At its Thursday sitting, the Board adopted a report on inflation for May 2011 which will be released on May 18, on the occasion of its public presentation.

Reference interest rate serves as the signal and initial interest rate, and the basic interest rates in the financial market are defined according to the reference rate.

This is also the rate which the NBS uses when selling treasury bills to commercial banks, with the obligation to buy them back within 14 days.