June 9, 2020 / 10:59 AM / a month ago

Serbia's central bank expected to keep main rate on hold: Reuters poll

BELGRADE (Reuters) - Serbia’s central bank is expected to keep its benchmark interest rate unchanged at 1.5% this week, hoping that policy measures implemented so far will be sufficient to help the country’s recovery from the coronavirus pandemic, a Reuters poll found.

Nine out of 13 analysts and traders polled this week andlast said the bank would hold the rate steady when its executive board meets on Thursday. Four predicted a 25-basis-point cut.

After also keeping the rate on hold last month, the bank said that two rate cuts and a government plan to invest 5.1 billion euros ($5.74 billion) to boost economy were the main factors in holding the rate steady.

Serbia, which is due to hold a national election on June 21, is expected to enter a recession this year, despite growing 5% in the first quarter, and to rebound in 2021 according to the government, World Bank and the International Monetary Fund.

Last year, the economy grew by 4.2%.

Djordje Djukic, a economics lecturer at the University of Belgrade, said the bank may cut the main rate to boost lending and growth, taking advantage of low inflation and a stable exchange rate of the dinar EURRSD=D1 versus euro, which is the preferred foreign currency.

“Positive effects (of a rate cut) could be bigger than an increase in inflation,” Djukic, who was not surveyed in the poll, told Reuters.

Inflation fell to 0.6% in April from 1.3% a month earlier, far below the bank’s target band of 3%, plus or minus 1.5 percentage points. The Statistics Office will announce inflation data for May on June 12.

As the rate of infection slowed, Serbia last month abolished the state of emergency imposed on March 15, which included the closure of borders, a daily curfew and weekend lockdowns.

Serbia has so far reported 11,896 confirmed cases of COVID-19 disease and 250 deaths.

Reporting by Aleksandar Vasovic; Editing by Alison Williams

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