Jan. 17 (Bloomberg) -- Serbia’s central bank probably will leave borrowing costs unchanged as a December slowdown in inflation and the strengthening dinar may prompt policy makers to temporarily refrain from a fourth consecutive increase.
The Belgrade-based Narodna Banka Srbije will keep the benchmark one-week repurchase rate at 11.25 percent after raising it from 10.95 percent last month, according to 13 of 22 economists in a Bloomberg survey. Nine expect a quarter-point increase and one sees a quarter-point cut. The central bank will announce the decision at around noon today in Belgrade.
The bank’s monetary policy runs counter to other authorities in eastern Europe, where rates are falling to halt economic slowdowns amid Europe’s debt crisis. Serb rate setters are still concerned about long-term inflation and are trying to bring it down to its target band of 2.5 percent to 5.5 percent this year after price growth jumped to 12.2 percent in 2012.
“We think this is just a pause, not an end to interest rate increases,” said Andrej Knez, an analyst at Zagreb-based Hypo Alpe- Adria-Bank DD.
The National Bank of Serbia began raising its benchmark rate last June from 9.5 percent, citing elevated inflationary expectations and higher-than-expected growth in food and regulated prices.
Prime Minister Ivica Dacic’s five-month-old coalition government is seeking to curb price increases and restart growth after the economy contracted an estimated 2 percent in 2012, betting on higher exports of Fiat SpA cars produced in Serbia and more sales of crude oil products abroad for growth.
Though December consumer prices fell from the previous month for the first time in a year, the annual rate rose from 11.9 percent in November, the statistics office reported on Jan. 11.
Inflation has been accelerating since April, when it fell to a 30-year low of 2.7 percent, due to rising food prices amid a drop in farm output. Prices continued to rise even as the economy fell into its second recession in three years and consumer demand contracted as wages remained tame and unemployment expanded.
The central bank re-introduced reverse repo operations last month, citing increased liquidity at banks and a need to mop up excess to avoid a spillover into aggregate demand, inflation and the dinar exchange rate.
Inflation is likely to peak by the end of the first quarter of this year, said Ljiljana Grubic, an analyst with the Belgrade-based Raiffeisen Bank AD.
“If they decide to keep the rate on hold, it may well be because the outstanding repo stock is expanding and there is no need for the central bank to pay such a high interest rate to banks,” said Grubic. “The central bank may easily continue to raise the rate as proof that the inflation targeting remains their monetary policy framework.”
The central bank has repeatedly said its rate decisions depend on fiscal-consolidation efforts by the government, which wants to narrow this year’s budget deficit to 3.6 percent of gross domestic product from 6.7 percent in 2012.
The gap in December was the second-highest monthly shortfall last year, according to Finance Ministry data.
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