Dealers and traders remained split in their predictions of whether Serbia’s central bank would cut its benchmark interest rate this week or hold borrowing costs at 2.5%, a Reuters poll showed on Tuesday.
Seven out of 13 analysts and traders polled this week and last said the bank’s executive board would keep the rate RSCBIR=ECI at the present level, while others saw a 25-basis- point cut, the third such move this year, at a rate-setting meeting on Thursday.
The central bank held rates in October, citing low inflation, the strong dinar currency, economic growth that was on track and the effects of global economic trends.
The bank had previously cut the main rate by 25 basis points in both July and August, to 2.75% and 2.5% respectively, to help guide inflation to within its target band of 3% give or take 1.5 percentage points.
In a report this week, the Erste Group said it expects policymakers would keep the main rate unchanged, adding “the call is likely to be close.”
“We lean toward a stability of rates scenario, due to the elevated external uncertainty, but acknowledge that the visible undershooting of inflation could lead to a rate cut down the road,” Erste said.
Serbia’s inflation rate fell below the central bank’s target to 1.1% in September, from 1.3% in August. The Statistics Office will announce October inflation data on Nov. 12.
According to both the central bank and the International Monetary Fund, Serbia’s economy is expected to grow 3.5% this year and 4% in 2020. It grew 2.9% in the second quarter of 2019.
Appreciation pressures on the dinar, mainly due to an inflow of foreign investments and demand for Serbia’s treasury bonds, eased slightly in late October, but resumed again in November.
To rein in the dinar’s exchange rate to the euro, the preferred foreign currency in the Balkan country, the central bank so far this year purchased over 2.6 billion euros ($2.89 billion) and sold 250 million euros on the local interbank market.