No Change in Serbian Key Interest Rate But Bias Remains Downward

May 19, 2010

Officials at the National Bank of Serbia left the two-week repo rate at a record low of 8.0% at today’s fortnightly policy meeting.  Three cuts of 50 basis points apiece have already been implemented in 2010 at meetings on march 23, April 8 and May 11, and those easings followed eight cuts spaced out in 2009 totaling 825 basis points from a cyclical high of 17.75% at the end of 2008.  Serbia still has an easing bias on monetary policy, meaning that further cuts are more likely than no further change in the current record low level.  However, the rate of rate declines will slow down.  One concern is the depreciation of the dinar.  In spite of that fact, CPI inflation continues to trend lower.  On-year CPI inflation of 4.3% in April after 4.7% in March was below the lower boundary of the central bank’s target range.  A strategy of inflation reduction is being pursued with the use of a CPI target range, which is slated to decline gradually over time.  The target is presently centered on 7.3%; by the end of 2010 it will be centered on 6% and extend from 4% to 8%.  At end-2011, such will have the same width but be centered on 5%.  Because of extensive slack in the economy and resulting weak demand-side pressure, officials project in-target inflation at both the end of 2010 and end-2011.  Real GDP posted on-year declines throughout 2009 but was 0.9% greater last quarter than in the first quarter of 2009.  Even so, monetary authorities have penciled in weak growth this full year of only 1.5%.

Copyright Larry Greenberg 2010.  All rights reserved.  No secondary distribution without express permission.



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