Serbia Set to Keep Record-Low Interest Rates as Economy Slows

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(Bloomberg) -- Serbia’s central bank will probably extend the period of record-low borrowing costs into a second year as economic growth slows and inflation remains under control.

A more dovish approach by the European Central Bank and the U.S. Federal Reserve may also add to arguments that policy makers in Belgrade will hold the benchmark at 3 percent for a 13th meeting on Thursday. The monetary authority traditionally avoids decisions that could trigger swings by tangling with factors from abroad.

“Inflation will slow down as of May," said Liljana Grubic, an analyst at Raiffeisenbank’s Serbian unit. "There are downside risks to the projected gross domestic product growth of 3.5 percent and increasing geopolitical risks are the factors for keeping the key rate unchanged.”

Economic activity also slowed for a third quarter in the first three months to mark the weakest expansion since 2017.

And even though consumer prices are rising at the fastest pace in more than a year -- 2.8 percent in March -- annual inflation still stayed below the middle of the central bank’s 1.5 percent to 4.5 percent tolerance range. Underlying price pressures are subdued, with core inflation at 1.3 percent, according to an ING Bank analysts.

Rate setters could “strike a dovish tone” given the stable inflation, lower growth and the “slower pace of normalization” expected from the U.S. Federal Reserve and the European Central bank, ING said in May 3 report.

©2019 Bloomberg L.P.

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