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Serbian Central Bank to Keep Benchmark Interest Rate on Hold, Survey Shows
Serbia’s central bank will probably keep its benchmark interest rate on hold tomorrow and wait until October before tightening monetary policy in response to growing price pressures, a survey showed.
The rate-setting body will leave the two-week repurchase rate at 8.5 percent, according to 16 of 22 economists surveyed by Bloomberg News. The other six respondents see the rate being raised by between a half a percentage point and a full point.
The Serbian National Bank raised the rate unexpectedly by half-point to its current level on Aug. 5 to bolster the dinar after keeping it steady since May 11.
“The last month’s interest rate increase was symbolic as a signal that they have an instrument to react,” Jasna Atanasijevic, chief economist at Hypo Alpe Adria bank in Belgrade, told Bloomberg news. But it was also symbolic in terms of the size of increase and consequent amplitude of its potential impact on economic activity. Looking ahead, they have reason to further increase rates.’’
The inflation rate rose to 5.1 percent in July from 4.2 percent in June, and the central bank sees it steadily rising toward the upper end of its 4 percent to 8 percent target range through the middle of 2011.
The impact of food and fuel prices is watched closely by Serbia, a landlocked Balkan country that faced bouts of hyper- inflation and currency crises through 2000, the year autocratic President Slobodan Milosevic was ousted. Food prices account for more than a third of the consumer price index. The International Monetary Fund said they are a key threat to the bank’s target.
Demand ‘Shock’
Last week, Prime Minister Mirko Cvetkovic ordered inspections to check the status of inventories as part of efforts to prevent artificial food shortages and price gouging.
“The August rise in inflation resulted from a shock on the demand side,” Milojko Arsic, a member of the central bank’s supervisory board, said. “The price increases in August didn’t result from higher domestic demand but from weaker harvests elsewhere around the world.”
Another aspect driving prices up in Serbia was the dinar currency, which has lost 9 percent this year and closed at 105.6269 to the euro last Friday. Since Aug. 5 rate increase, the central bank sold 94.5 million euros to tame the dinar declines, reacting whenever the currency touched the level of 105.5 to the euro.
Any rate increase will have to take into account a still recessionary environment, depressed demand, and expectations for a still weaker dinar toward the end of the year, Atanasijevic said.
The majority of respondents in the survey see the dinar stabilizing, with the median forecast for 105.88 dinars to the euro at the end of September and 106.3 at the end of October. In the last month’s survey, respondents saw the dinar at 107 to the euro at the end of September.
To contact the reporter on this story: Gordana Filipovic in Belgrade at gfilipovic@bloomberg.net
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