Serbia's central bank cut its policy rate by 50 basis points to 11.25 percent due to "significant lower inflationary pressure," and said the inflation rate is expected to return to its target range in the last quarter of this year.
The National Bank of Serbia, which raised interest rates eight times in a row from June 2012 but then paused in March and April, said monthly inflation rates confirmed a weakening of inflationary pressures and future policy decisions would be determined by "international developments, fiscal movements and the impact of the new agricultural season on food prices."
Serbia's annual inflation rate rose to 11.4 percent in April from 11.2 percent in March, but inflation is
slowly coming down after hitting a 2012-high of 12.9 percent in October due to lower pressure on food prices and inflationary expectations.
The central bank targets inflation of 4.0 percent, plus/minus 1.5 percentage points.
"Low aggregate demand, stable developments in the foreign exchange market and a falling risk premium of the country, together with the expected full-blown effect of past monetary policy measures, will contribute to a further fall in year-on-year inflation," the central bank said.
Serbia's Gross Domestic Product contracted by 0.3 percent in the fourth quarter of 2012 after a fall of 0.8 percent in the third. But on an annual basis, GDP rose by 1.9 percent, the first time the economy expanded on an annual basis since the third quarter of 2011.
The central bank expects economic growth of 2 percent this year, mainly driven by exports. In 2012 Serbia's economy contracted by 1.8 percent