UPDATE 1 - Serbia's C-bank Keeps Key Repo Rate Flat at 12%

“NBS will wait for the 2010 budget to decide if it will lower its key repo rate,” central bank governor Radovan Jelasic told a news conference.

The NBS monetary committee decided to keep the repo rate unchanged as a result of anti-inflationary factors, stable local currency, the lowering of risk premiums, lowered inflationary expectations and the government’s announcement that the growth of regulated prices will be much slower in the coming period, Jelasic told the news conference. The next session of the rate-setting committee will be held on September 23.

Serbia’s July consumer price index (CPI) fell 0.9% month-on-month after remaining flat in June.

“We expect deflation of about 0.1% in August, mainly as a result of a seasonal drop in the prices of agricultural products,” Jelasic said.

The International Monetary Fund (IMF) has suggested to the government in Belgrade to exit its soft loans programme for corporate borrowers, launched in March to stimulate the economy, because pressure on local banks had eased, Jelasic said.

“The IMF did not insist on this measure, but it was among its suggestions,” he elaborated.

The Balkan country signed a two-year, 3.0 billion euro ($4.3 billion) funding arrangement with the IMF in March and received the first tranche of some 800 million euro in May. The global lender said earlier this week it will decide whether Serbia will be allowed to get the second and third tranches combined after the third review of the country’s performance under the funding deal in October.

NBS last changed the repo rate on July 10, cutting it to 12% from 13%. It also relaxed lending rules for local banks to stimulate domestic demand amidst global economic downturn.

($=0.7011 euro)