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BELGRADE (Serbia), December 29 (SeeNews) – Serbia’s central bank said on Tuesday it lowered its key repo rate by 0.5 percentage points to 9.5% on lower demand and the positive assessment of the country’s economic performance by the International Monetary Fund.
The lower demand continues to have anti-inflationary effects even though Serbia’s economic activity accelerated in the third and the fourth quarters of this year, central bank governor Radovan Jelasic told a news conference. Serbia’s economy contracted by a real 2.7% in the third quarter of 2009 after shrinking by 4.1% in the first half of 2009.
The central bank, NBS, expects Serbia’s currency to fall by 4.3% to 100.4 dinars per euro through 2010, Jelasic said, adding that the average exchange rate of the dinar has gone down by about 6.0% through 2009.
NBS also expects annual consumer price inflation in Serbia to return to its target value of about 7.0% in December, Jelasic said. The country has reported monthly inflation of 0.8% in November after 0.2% deflation in October. On an annual basis, inflation accelerated to 5.9% last month from 5.2% in October.
NBS forecasts that Serbia’s inflation will be about 2.3% in the first quarter of 2010 resulting from a rise in government-controlled prices of electricity, crude oil and cigarettes, Jelasic said. NBS said earlier that 2010 inflation will meet its target of 6.0% with a variation band of two percentage points on either side. The central bank expects the country's consumer prices to rise by about 7.0% this year, compared to an 8.6% increase in 2008.
Serbia attracted 1.1 billion euro in net foreign direct investments (FDI) in the first 11 months of this year, Jelasic said. He added that Serbia is expected to attract 1.3 billion euro in net FDI next year. The Balkan country attracted $2.1 billion in FDI last year.
The new repo rate of 9.5% took effect on Tuesday. NBS previously changed it on November 5, lowering it to 10% from 11%. The repo rate has come down from 17.75% over the course of the year so far. The next session of the central bank's rate-setting monetary committee will take place on January 12, 2010.
Last week the IMF released the second tranche of its 3.0 billion euro ($4.3 million) loan to Serbia in the amount of 350 million euro aimed at strengthening the country’s foreign exchange reserves following a positive review of the country’s economic performance under the stand-by funding arrangement.
Serbia withdrew the first tranche of the stand-by loan facility worth 788 million euro in May. The government in Belgrade signed the two-year stand-by loan deal with the IMF in March, agreeing to cuts in public spending that would slash budget deficit to 4.0% of the projected gross domestic product next year from 4.5% planned for this year.
($=0.6941 euro)