Serbia Holds Rate After Two Surprise Cuts Before ECB Decision

(Bloomberg) --

Serbia’s central bank kept interest rates unchanged at a record low, pausing after two unexpected cuts to assess the impact of looser monetary policy on below-target economic growth and slowing inflation.

The National Bank of Serbia held its benchmark rate at 2.5% on Thursday, citing caution because of an uncertain global environment. The decision was predicted by most economists in a Bloomberg survey.

The bank particularly mentioned tensions over global trade and monetary easing by the world’s big central banks, including the U.S. Federal Reserve, whose policy often influences flows into dinar-denominated assets.

After the Fed’s July rate cut, “it remains unclear if the Fed's measures represent the beginning of a new monetary easing cycle, that is, whether the interest rate cuts will continue,” the bank said in the statement.

The move comes as the European Central Bank ponders fresh stimulus for the global economy in response to the U.S.-China trade war. Elsewhere in eastern Europe, the Polish central bank kept rates unchanged on Wedneday, even as the government plans to almost double the minimum wage.

Still, economists said more easing in Serbia may be in the cards before the year end, as the Balkan state prepares for 2020 elections. With central bank Governor Jorgovanka Tabakovic a senior member of President Aleksandar Vucic’s ruling Progressive Party, the bank has said it will coordinate with the government’s goals.

Those include an annual economic expansion of 3.5% this year -- well above the sub-3% results in the first half -- and raising the average salary to 500 euros ($551) a month.

Another issue is inflation. Consumer price growth slowed last month to 1.3% from a year earlier, below the lower end of central bank’s 1.5% to 4.5% target band.

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

To contact the editors responsible for this story: Andrea Dudik at adudik@bloomberg.net, Michael Winfrey, Andrew Langley

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