July 9, 2020 / 10:22 AM / a month ago

UPDATE 1-Serbian central bank keeps benchmark rate unchanged

(Adds quotes from central bank statement, details)

BELGRADE, July 9 (Reuters) - Serbia’s central bank left its benchmark interest rate unchanged at 1.25% on Thursday as new coronavirus infections spiked and in the absence of a new government.

All 11 analysts and traders polled this week and last said the bank would hold the rate steady.

The bank cut the rate last month, saying additional policy support was needed to ease the negative effects of the coronavirus crisis and to boost growth.

In a statement, the bank said that effects of policy moves so far and future effects of a government’s 5.1 billion euros ($5.78 billion) recovery plan served as key factors that motivated it to keep the main rate on hold.

“Previous rate cuts ... in an environment of high liquidity of (commercial) banks ..., will continue to affect developments in the financial and real sector and contribute to maintain favorable financing conditions for the economy and citizens,” it said.

Last week, the International Monetary Fund said Serbia’s economy will shrink 3% this year before rebounding to 6% growth in 2021. It also praised the government’s 5.1 billion-euro ($5.7 billion) recovery plan.

The absence of a new government, after a landslide victory of the ruling Progressive Party of President Aleksandar Vucic in June 21 elections and mass protests over state handling of coronavirus crisis, did not play a role in bank’s policy move.

Inflation in the Balkan country stood at 0.7% in May, up from 0.6% in April, well below the bank’s target of 3% plus or minus 1.5 percentage points. The Statistics Office will announce June inflation data on July 13.

Serbia has so far reported 17,706 confirmed cases of COVID-19 and 341 deaths.

After the rate decision, the dinar traded against the euro at the rate of 117.6 slightly down from previous close. ($1 = 0.8828 euros) (Reporting by Aleksadnar Vasovic; editing by Larry King;)

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