Serb Central Bank to Consider Rate Cuts as Inflation Slows

Serbia’s central bank said it will consider changes to its policy as inflation pressures weaken after nine months of monetary tightening.

Inflation accelerated to 12.2 percent in December from 11.9 percent and the pace of increases in the coming months will depend on government-controlled prices, the Belgrade-based Narodna Banka Srbije said today in a quarterly inflation report.

“There are no risks to achieving our inflation forecast, except that achieving the forecast may be delayed for a month or two,” Governor Jorgovanka Tabakovic told a news briefing in Belgrade. The central bank and the government will take steps to curb inflation by stabilizing the food market and defining a plan for regulated price increases.

Serbian rate-setters “will consider the possibility of relaxing monetary policy” as “inflationary pressures based on food and regulated prices disappear,” according to the report. The central bank predicts a full-year increase in regulated prices of 10.7 percent, with a 7 percent jump in the first three months.

Regional Trend

The National Bank of Serbia has been running counter to other authorities in eastern Europe, where borrowing costs are falling to halt economic slowdowns amid the debt crisis. The central bank has raised its benchmark interest rate by 2.25 percentage points to 11.75 percent since June, trying to bring inflation within its target band of 2.5 percent to 5.5 percent.

The present interest-rate level represents “a sufficient degree of restrictiveness if there are no deviations from assumptions in our scenario,” Vice-Governor Veselin Pjescic said at the same briefing.

The bank forecasts the firming dinar to help weaken inflationary pressures, along with subdued consumer demand as a result of “high unemployment and low real wages,” the bank said in the report.

The inflation forecast also assumes economic contraction in the euro area, Serbia’s main trading partner and investor, of 0.1 percent in 2013 and year-end inflation of “less than 2 percent,” it added.

Serbia’s economy will grow 2.5 percent this year after an estimated 1.7 percent decline in 2012, with Fiat SpA’s factory in Serbia contributing 1 percentage point and oil monopoly NIS a half-point to growth, Tabakovic said.

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