National Bank of Serbia Eases Somewhat Surprisingly

June 6, 2013

The Executive Board of the central bank authorized a second straight reduction of the one-week repo rate, this time by 25 basis points to 11.25%.  Between June 2012 and February 2013, eight hikes had been undertaken, lifting the rate from 9.5% to 11.75%.  A cut of 50 bps in May was the first easing since January 2012.  Because of recent weakness in the Serbian dinar, a majority of analysts had not foreseen today’s second rate cut.

According to a statement on the Serbian central bank web site, the dinar’s slide was attributed to global, not domestic factors, and a follow-up rate is justified by expectations that inflation will subside back into the 2.5-5.5% target band by October as a result of “monetary policy measures taken thus far, lower food prices in the new agricultural season, low aggregate demand and additional fiscal consolidation measures that will eliminate uncertainty with regard to the future economic policy.”  The next policy announcement is due on July 9.  Future decisions will hinge critically on the “comprehensiveness of reforms in the field of public finance.”

Copyright 2013, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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