National Bank of Serbia Surprises With Timing of Second Rate Cut

April 6, 2009

Serbia’s two-week repo rate was slashed 150 basis points to 15.0%.  This second reduction following a 125-bp cut on January 22nd had not been expected now, and it brings the rate back to its lowest level since 14.5% during the single week to April 24, 2008.  Officials released a statement that cited falling demand, lower inflation, a more restrictive fiscal policy and decelerating inflation expectations but asserted that further reductions of the policy rate would be contingent on a new arrangement with the IMF assuring ample external finance and sufficiently disciplined fiscal restraint.  The currencies of Eastern Europe have be vulnerable because those economies borrowed heavily to promote prior growth and finance large balance of payments deficits.  Interest rates in the region are comparatively high, and many of the central banks have been reluctant to cut rates and willing to do so only in tiny increments.  Serbia’s central bank action today challenges that stereotype.

Copyright 2009 Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.


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