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Serbian Central Bank Will Probably Cut Rates as Inflation Slows

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May 14 (Bloomberg) -- Serbia’s central bank will probably lower borrowing costs today for the first time since January 2012 to spur economic growth as price pressures ease, a survey of economists showed.

The Narodna Banka Srbije will cut the benchmark one-week repurchase rate by a quarter-point to 11.50 percent, according to 11 of 23 economists in a Bloomberg survey. Four predict a half-point reduction, three see a 75 basis-point decrease and five forecast borrowing costs staying unchanged. The bank will announce its decision at about noon in Belgrade.

Serbian monetary policy is set to follow the rest of eastern Europe, where borrowing costs are falling to bolster flagging economic growth. Rather than battling last year’s recession with rate cuts, central bankers in Belgrade tightened policy eight times in nine meetings through February as regulated price increases and rising dinar liquidity drove the inflation rate to a 12.9 percent October peak.

“Essentially, we are seeing rate cuts virtually everywhere,” Benoit Anne, the head of emerging-market strategy at Societe Generale SA in London, said in a May 9 e-mail to investors, predicting a quarter-point cut. “Including in Belgrade where we expect the National Bank of Serbia to switch back to an easing bias next week.”

Poland’s central bank on May 8 cut its benchmark interest rate by a quarter-point to a record-low 3 percent and Hungary reduced borrowing costs for a ninth month in April, bringing it to an all-time low of 4.75 percent from 5 percent.

The Serbian dinar traded at 110.9060 per euro at 5:35 p.m. in Belgrade yesterday. It has gained 1.3 percent against Europe’s common currency this year.

Inflation Outlook

The inflation rate rose from a 30-year low of 2.7 percent in April 2012. It reached 12.4 percent in February and was 11.4 percent last month. Policy makers want to bring it down to 4 percent, plus or minus 1.5 percentage points, by December.

The pace of price increases may slow to about 9.8 percent in May, giving the central bank scope to ease, according to Predrag Stojanovic, head of treasury at Belgrade-based Piraeus Banka AD.

The central bank “is well behind the curve” and “since they did not cut last month, it may not be realistic to expect a 75 basis point reduction, but a quarter-point could be realistic,” Stojanovic said. “The 11.75 percent makes little sense except for a psychological reason to show that Serbia has high interest rates.”

To contact the reporter on this story: Gordana Filipovic in Belgrade at gfilipovic@bloomberg.net

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net

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