Serbia Seen Cutting Rates as Inflation Eases: Decision Guide

Serbia may take advantage of signs headline inflation is easing to cut interest rates to the lowest level in almost two years after policymakers held the benchmark last month.

(Bloomberg) — Serbia may take advantage of signs headline inflation is easing to cut interest rates to the lowest level in almost two years after policymakers held the benchmark last month.

The National Bank of Serbia will reduce its one-week repurchase rate by a quarter point to 5.5% on Thursday, according to 10 out of 17 analysts in a Bloomberg survey. The remaining seven anticipate no change.

Rate setters in Belgrade had battled a surge in price growth with their steepest monetary tightening cycle before shifting to easing in June. Officials have since paused twice, including in October due to concerns that unrest in the Middle East would fuel an increase in oil prices and affect global inflation, as well the pace of easing by leading central banks.

The US Federal Reserve is expected to cut again on Thursday, while Serbian officials may act after annual headline inflation dipped to 4.2% in September. The rate had spiked to 4.3% in July and remained at that level the next month.  

“Another expected reduction of the Fed fund rate could open the way for gradual resumption of easing in Serbia, although inflation remains rather sticky over the recent past,” according to Jakub Kratky, a Prague-based analyst at Generali Investments. 

The Balkan nation’s core inflation, which excludes volatile food and energy prices, crept up to 5.3% in September from 5% in May.

Economic growth has been robust this year, albeit losing steam with an estimated 3.1% expansion in the third quarter after 4.3% in the first six months. Gross domestic product is seen rising 4% this year, President Aleksandar Vucic said in a Bloomberg interview last month. 

—With assistance from Harumi Ichikura.