Serbia Will Probably Cut Benchmark Rate as Inflation Eases

Serbia’s central bank will probably cut its main interest rate after two months of keeping borrowing costs unchanged after consumer-price growth slowed and the dinar weakened to its lowest level in 11 months.

The Narodna Banka Srbije, based in the capital, Belgrade, will lower the one-week repurchase rate to 10.75 percent from 11 percent, according to 11 of 24 economists in a Bloomberg survey. Two predict a half-point cut, while 11 see no change. The bank will announce the decision today at about 12 p.m.

Serbia “will probably start cutting as the policy rate is high,” said Eldar Vakhitov, an emerging-markets economist at Barclays Plc in London. “A call for consecutive cuts may look a little aggressive” and is “conditional on no significant external shocks.”

The Balkan nation last month avoided a snap election, the prospect of which sent its borrowing costs to the highest in a month. Prime Minister Ivica Dacic, who heads the Socialist Party, and Deputy Premier Aleksandar Vucic, the Progressive Party leader, agreed on a government shuffle and an economic overhaul to avert the early balloting.

The dinar, which has depreciated 2.3 percent this year, declined to 115.051 per euro at 17:01 p.m. yesterday in Belgrade, the lowest since October 2012, data compiled by Bloomberg showed. The yield on 10-year government debt denominated in dollars hovered near a one-month high after reaching a record 7.467 percent on June 24.

Inflation Targeting

Consumer prices advanced 8.6 percent from a year earlier in July, the least since October 2012 and more slowly than June’s 9.8 percent increase. Policy makers are targeting a rate of 4 percent, plus or minus 1.5 percentage points this year. Gross domestic product will rise 1.5 percent to 2.5 percent this year, Moody’s Investors Service said Aug. 26.

In the Sept. 2 reorganization of the government, Lazar Krstic was appointed Finance Minister and pledged to cut spending and reduce the state’s role in the economy to attract foreign investment as Serbia strives to move closer to European Union membership.

The government also needs to curb the budget gap, which may reach 5.1 percent of GDP this year, above an already revised target of 4.7 percent, Fiscal Council Chairman Pavle Petrovic told state-run broadcaster RTS late yesterday. Krstic sees the gap at 6.5 percent of GDP.

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