Serbia's central bank cut its policy rate by 50 basis points to 10.00 percent, its fourth rate cut this year, and signaled that it is now close to a neutral policy stance as inflation has continued to fall and "future monetary policy measures will be geared at keeping it within the target tolerance band."
The National Bank of Serbia has now cut rates by 125 basis points since May following rate rises in January and February to push down inflation.
"As inflationary pressures and inflation expectations continue to subside, the Executive Board expects year-on-year inflation to fall close to the lower end of the target tolerance band in October," the bank said, adding that fiscal consolidation and positive international financial markets would help inflation remain within the bank's target range in 2014.
Serbia's inflation rate fell further in September to 4.9 percent from 7.3 percent in August, continuing its decline from 12.8 percent in January. The central bank targets inflation of 4.0 percent, plus/minus 1.5 percentage points and raised rates by 150 basis points last year.
The fall in September inflation was attributed to lower prices of agricultural commodities, low demand and a relatively stabile exchange rate along with the bank's policy stance.
The central bank also noted that Serbia's current account deficit was estimated to have narrowed to 1.4 percent of Gross Domestic Product in the third quarter due to increased economic activity. In 2012 Serbia's current account deficit rose to 11.5 percent of GDP from 9.9 percent the prior year.
Serbia's economy strengthened in the second quarter, with GDP expanding by 0.3 percent from the first quarter for annual growth of 3.2 percent, up from 0.2 percent in the first.