Serbia cuts rates for 2nd time this month

By MoneyTimes

Sep 14, 2015 10:13 PM EDT

With an objective of boosting economic growth, Serbia has slashed interest rate for a consecutive second month. The inflation rate is below the government's target and GDP growth rate was also eased in 2014. The decision of Serbia, the biggest former Yugoslav republic, to slash interest rate for a consecutive second month surprised everyone as it unexpected one both the times.

After the unexpected half-point cut in August, the National Bank of Serbia (NBS) once again slashed interest rate from 5.5 percent to five percent on one-week repurchase rate on Thursday (10 September). Though it was in line of forecasts of some economists, the timing of decision surprised everyone. The Serbian central bank slashed rate for the sixth time this year so far. 

According to a study done by Bloomberg, four out of 23 economists forecast turned out to be same. Five analysts predicted the rate decrease to 5.25 percent while 14 projected no change in interest rates. 

Serbia's business and foreign trade mostly depend upon neighboring European Union (EU). The country's most of the debt financing is sourced from the US market. Serbia is gearing up for next level action to strengthen the economy after keenly watching the latest developments in Europe and the US. 

Serbia has decided to ease monetary structure further after the European central bank's revamped quantitative easing plan. The country has also considered the Federal Reserve's possible attempt to raise rates. 

Serbia has been implementing several measures to revive the economy, which is suffering from the third recession since 2009. Consumer-price growth was below the target range of 2.5-5.5 percent for the past 17 months. 

The inflation rate is hovering below the central bank's target of 2.5 percent and it's likely to continue at lower level only, forecasts economist. 

National Bank of Serbia is expecting the inflation rate to escalate to four percent in 2016. The next meeting of NBS executive board is scheduled on 15 October. 

Serbia has taken euro1.2billion ($1.34bn) finance from International Monetary Fund (IMF). As part of the deal agreement with IMF, Serbia raised electricity charges by 12 percent in August. This is expected to push inflation rate upwards. 

The National Bank of Serbia's target of inflation rate is in the range of 2.5 percent to 5.5 percent this year, but inflation still at low ebb below 2.5 percent.  However, it's recovery when compared with previous year's 1.8 percent contraction. The devastating floods also impacted economy last year.

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