Bloomberg News

Serbia Raises Main Rate for Fifth Meeting Amid Inflation

January 17, 2013

Serbia’s central bank increased borrowing costs for a fifth meeting as it battles to slow Europe’s second-fastest inflation.

The Belgrade-based Narodna Banka Srbije raised the one-week repurchase rate a quarter-point to 11.5 percent, the bank said today in a statement on its website. Eight of 22 economists in a Bloomberg survey predicted an increase, while 13 expected no change and one saw a quarter-point cut.

“The monetary-policy reaction is directed at preventing spillover effects of regulated price increases to other prices through higher inflationary expectations,” the bank said in an e-mailed statement. Policy makers also want to ensure that increased dinar liquidity doesn’t put pressure on prices or the currency, the bank said.

Serbian rate-setters are running counter to other authorities in eastern Europe, where rates are falling to halt economic slowdowns amid the debt crisis. The central bank is trying to bring inflation down to its target band of 2.5 percent to 5.5 percent this year after prices jumped 12.2 percent in 2012, behind only Belarus with 21.8 percent.

Price Pressures

December inflation “showed a renewed acceleration” and “inflation pressures will remain elevated till the end of the agricultural season in mid-spring,” analysts at Societe Generale including Guillaume Salomon said in a note to investors today.

The National Bank of Serbia began raising its benchmark rate last June from 9.5 percent, citing elevated inflationary expectations and higher-than-expected growth in food and regulated prices. Policy makers expect inflation to peak by the end of the first quarter before slowing toward the target.

Today’s rate increase was “slightly surprising,” Tim Ash, chief emerging-markets strategist at Standard Bank Group Ltd. in London, said by e-mail. The central bank is “eager to show its hawkish credentials and improve its credibility.”

Prime Minister Ivica Dacic’s five-month-old coalition government is seeking to curb price increases and restart growth after the economy contracted an estimated 2 percent in 2012. It’s betting on higher exports of Fiat SpA cars produced in Serbia and more sales of crude oil products abroad.

Inflation has been accelerating since April, when it fell to a 30-year low of 2.7 percent. Prices have risen even as the economy fell into its second recession in three years and consumer demand contracted as wages remained tame and unemployment expanded.

To contact the reporters on this story: Gordana Filipovic in Belgrade at gfilipovic@bloomberg.net; Misha Savic in Belgrade at msavic2@bloomberg.net

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net


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