September 9, 2019 / 9:30 AM / 13 days ago

Serbia's central bank expected to keep main rate at 2.5%: Reuters poll

BELGRADE (Reuters) - The Serbian central bank is expected to leave its benchmark rate unchanged at 2.5% on Thursday, after cutting it by 25 basis points in August, since the dinar remains strong, growth on track, and inflation inside the target band, a Reuters poll showed on Monday.

Eleven out of 13 analysts and traders polled this week and last said bank’s executive board would leave the rate RSCBIR=ECI unchanged at this week’s meeting. Two saw a 25-basis-point cut, the third in as many months.

In August, the bank lowered the rate to 2.5% to bolster lending and growth. It also said that policy moves of the U.S. Federal Reserve and the European Central Bank, as well as global trade disputes, also played a role in the rate cut.

The Serbian economy grew 2.9% in the second quarter of 2019. The government, central bank and the International Monetary Fund, which has a non-financial and advisory arrangement with Belgrade, forecast 3.5% growth this year.

Serbia’s inflation rate rose to 1.6% in July from 1.5% in May and remains at the bottom threshold of central bank’s target for 2019 of 3%, give or take 1.5 percentage points. The statistics office will announce August inflation data on Sept. 12.

Sasa Djogovic, a economist with the Belgrade-based Institute for Market Research said that the rate would remain unchanged because tension over Brexit could lead to “a market contraction and policymakers would want to prevent the outflow of the (foreign) capital” invested in Serbia’s state bonds.

“But, there’s room for cuts as the dinar remains under appreciation pressures,” he said.

The dinar EURRSD=, bolstered by remittances from Serbs living in the European Union, investments and purchases of euro-denominated treasury bonds, remained strong against the euro since April. Last week, a Reuters poll suggested the dinar will fall 0.3% by the end of 2019.

The central bank, which keeps the local currency in a managed float, has so far this year purchased around 2 billion euros ($2.21 billion) to stem the dinar’s gains.

Reporting by Aleksandar Vasovic; editing by Larry King

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