Tuesday, March 12, 2013

Serbia holds rate, pauses after 8 hikes, sees lower inflation

    Serbia's central bank held its benchmark interest rate steady at 11.75 percent, pausing after eight rate hikes since last June, saying its current policy stance should return inflation to the bank's target.
    The National Bank of Serbia, which has raised rates in the last eight of nine committee meetings since June 2012, said a low monthly inflation rate in the last four months confirms the impact of recent policy measures even if the annual inflation rate remains above target.
    Serbia's inflation rate rose rose to 12.8 percent in January from December's 12.2 percent, sharply above the central bank's target of 4.0 percent, plus/minus 1.5 percentage points.
    Economists had expected the central bank to hold rates unchanged following last month when it said that inflation should start to decline due to its recent rate rises - 2.25 percentage points since June - a new agricultural season and the disappearance of the base effect of higher administered prices.
    The National Bank said the expected decline in inflation should help the government implement its fiscal consolidation program, reach a preliminary agreement with the International Monetary Fund, and stabilize agricultural administered prices.

    "So far, the monetary policy measures have taken into account the strength and character of inflationary pressures and demonstrate the bank's firm commitment to returning inflation to the target range," the central bank said.
     Serbia's Gross Domestic Product contracted by 0.8 percent in the third quarter from the second quarter for an annual contraction of 1.5 percent, below the second's quarter's rate of minus 2.5 percent but above the first quarter's 0.8 percent.
    Serbia's inflation rate started accelerating in April last year when it hit a 30-year low of 2.7 percent and peaked at 12.9 percent in October due to higher agricultural prices and administered prices.
    Last month the central bank said in its quarterly inflation report that it would consider relaxing its policy stance as inflationary pressures from higher food and administered prices disappear.
    The central bank estimated that the country's economy contracted by 1.7 in 2012 and forecast an expansion of 2.5 percent in 2013.


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