Serbia Maintains Hold on Rates as It Weighs Price Pressures

Serbia’s central bank kept borrowing costs on hold, an unexpected move that signaled caution as policymakers weigh lingering price pressures.

(Bloomberg) — Serbia’s central bank kept borrowing costs on hold, an unexpected move that signaled caution as policymakers weigh lingering price pressures. 

The National Bank of Serbia left the one-week repurchase rate at 5.75%, according to a statement published Thursday. The decision was predicted by seven economists in a Bloomberg survey, while 10 expected a 25 basis-point cut.

“It’s necessary to continue with a cautious and still restrictive monetary policy, bearing in mind somewhat increased resilience of inflationary pressures,” the central bank said as it announced its decision. The effects of this year’s 75 basis points in cumulative cuts can still be expected “in the coming period,” it said.  

Policymakers in Belgrade had responded to a surge in price growth with a round of monetary tightening before shifting over to easing in June. But officials have since opted to pause cuts at three meetings as the Balkan nation’s core inflation, which excludes volatile food and energy prices, crept up to 5.3% in September from 5% in May. 

Policymakers in Belgrade also held the rate steady in October, citing concern that unrest in the Middle East would fuel an increase in oil prices and affect global inflation, as well as accounting for the pace of easing by leading central banks. The country secured its first investment-grade status that month when S&P Global Ratings lifted it one notch. 

The Balkan nation’s core inflation, which excludes volatile food and energy prices, crept up to 5.3% in September from 5% in May, well above the target range of around 3%.

Gross domestic product subsided in the third quarter after registering 4.3% growth in the first six months of the year. President Aleksandar Vucic told Bloomberg last month that he expects GDP growth of 4% next year.

—With assistance from Harumi Ichikura and Maxim Edwards.

(Adds central bank comment in third paragraph.)