Friday, December 14, 2012

Serbia raises policy rate 6th time this year to 11.25%

    Serbia's central bank raised its policy rate by another 30 basis points to 11.25 percent and said its open market operations would be aimed at withdrawing excess dinar liquidity to restrain demand, which could impact the inflation and exchange rate.
    The National Bank of Serbia, which has raised its policy rate six times this year by a total of 1.75 percentage points since June, said food and administered prices will be the main factor driving the inflation rate in the foreseeable future and it expects the inflation rate to return to the bank's tolerance band by end-2013.
    Serbia's inflation rate eased to 11.9 percent in November from October's 12.9 percent, but the bank said this was a temporary slowdown, noting the inflation rate remains above the bank's target of 4.0 percent, plus/minus 1.5 percentage points.

    "In this regard, fiscal consolidation measures, which have already yielded initial effects, are yet to give their full contribution to the reduction in year-on-year inflation over the next year," Serbia's central bank said in a statement.

   The central bank has been raising rates to hold down inflation despite a slumping economy. 
    Serbia's third quarter Gross Domestic Product contracted by an annual 2.2 percent, faster than the 0.8 percent shrinkage in the second quarter, and the central bank expects a 2.0 percent drop in GDP for the year. For 2013 the bank forecasts growth of 2.5 percent.
   Serbia's central bank started the year by cutting its policy rate by 25 basis points as inflation was declining, but since May inflation has been rising rapidly and the bank started raising rates in June.


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