Serbia raises rate to 10.75%, warns of further hikes

    The central bank of Serbia raised its key policy rate by another 25 basis points to 10.75 percent, its fourth increase this year, to push down inflation, already significantly above the bank´s target range.
    The National Bank of Serbia (NBS) also held out the prospect of further interest rate rises, saying the "degree of future monetary policy restrictiveness in the coming period will depend on the success in containing inflation expectations, the impact of external factors and the effects of fiscal consolidation."
    Inflation in August of 7.9 percent was above the central bank´s upper tolerance range of 5.5 percent and said the forces driving up inflation was higher food prices from a bad harvest, higher administered prices and VAT and duties.
    "In view of higher than expected growth in food and administered prices and elevated inflation expectations, the Executive Board decided to raise the key policy rate to prevent the spillover to other prices," the bank said after a meeting of its executive board.
    Nevertheless, the bank acknowledged that inflation was being fueled by one-off factors and low demand should have disinflationary influence in the future, along with expected fiscal consolidation.
    The central bank expects inflation to peak in the first half of 2013 and then decline to within the bank´s target range of 4 percent, plus/minus 1.5 percentage points.
    The bank has earlier said it expects inflation of 9-10 percent at the end of 2012.
    The NBS raised rates in June, July and August for a total of 100 basis points.
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