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Sep 11, 2009 20:20 EEST
BELGRADE (Serbia), September 11 (SeeNews) – Serbia’s central bank, NBS, said on Friday it is more likely it will lower its key repo rate than keep it flat at 12% in the period ahead.
“There is still room for monetary policy easing given the low demand, the stability of the local currency dinar, the freezing of public sector salaries and the government’s expectations that the growth of regulated prices will be considerably slower in the second half of 2009,” the head of the Sector for Economic Analysis and Research at the NBS, Branko Hinic, told a news conference, giving no timeframe.
“A repo rate cut will also be made possible as a result of the readiness of local commercial banks to accept lower returns due to diminished risks and the easing of the depressionary squeeze,” Hinic told the same news conference.
The NBS monetary committee decided to keep the repo rate unchanged last week. NBS last changed the repo rate on July 10, cutting it to 12% from 13%.
The next session of the rate-setting committee will be held on September 23.
NBS Governor Radovan Jelasic said last week that the decision for further cuts will hinge on the parameters of the government’s 2010 budget.
The NBS expects Serbia's consumer price index (CPI) to grow 9.0% in 2009, Hinic also said, adding that CPI will remain flat in the third quarter of 2009 compared to the previous quarter. Regulated prices grew 14.9% during the first eight months of this year compared to the government’s projection for a full-year gain of 13%, plus or minus 2.0%, Hinic added.
Serbia’s July CPI fell 0.9% month-on-month after remaining flat in June. On an annual basis, inflation in July sped up to 8.5% from 8.3% in June.
Negative factors will outnumber positives throughout the rest of the year, Hinic said, adding that the NBS projects Serbia’s economy will shrink by 4.4% in the second quarter. The Balkan country’s gross domestic product (GDP) will contract by 4.3% in the first half of 2009, Hinic also said.
Serbia's economy contracted by a real 3.5% on the year in the first quarter of 2009 after growing by a revised annual 8.5% a year earlier, the country's statistics office said in June.
Still, some improvement will be evident towards the end of the year, Hinic said.
“Industrial output is expected to rise as U.S. Steel temporarily restarts production,” he said, adding that Serbia’s economy may shrink by as little as 3.6% in 2009 given solid agriculture revenues and the decision of U.S. Steel Serbia to temporarily relaunch the second of its two blast furnaces idled in April due to the global economic downturn.
Serbia's July industrial output dropped 15.4% on the year after falling by an annual 14.1% in June. In July, Serbia's industrial output was 13.3% lower than last year's average. Industrial output contracted 17% in the first seven months of 2009 compared to the same period in 2008.
The dinar has been seesawing between 92.6 per euro and 95.4 per euro in the second quarter of 2009, Hinic said and added that, according to a Reuters poll, the Serbian currency could lose 2.9% against the euro by the end of the year.
NBS has set the Monday official exchange rate of the dinar at 93.4985 against the euro.
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