(Bloomberg) — Serbia unexpectedly raised borrowing costs a month after policymakers paused a cycle of monetary tightening as inflation began to slow.
(Bloomberg) — Serbia unexpectedly raised borrowing costs a month after policymakers paused a cycle of monetary tightening as inflation began to slow.
The central bank in Belgrade lifted its benchmark interest rate by a quarter percentage point to 6.25% on Thursday, a decision predicted by only four of 18 analysts in a Bloomberg survey. The others forecast no change.
“It is still necessary to continue with moderate tightening of monetary conditions to prevent a rise in inflationary expectations,” the National Bank of Serbia said in a statement. The move will ensure “inflation moves on downward trajectory and returns to within the tolerance band.”
Policymakers also raised the rates on the central bank’s deposit and credit facilities to 5% and 7.5% respectively.
A latecomer to rate hikes in the region, Serbia’s authorities had sought to shield the economy from high borrowing costs but still made 13 straight increases through April to tame inflation. The Balkan nation has now increased its main rate, from a record low 1% since last April, to the highest in eight years.
The International Monetary Fund, which has a $2.5 billion financing program with Serbia, has urged policymakers not to end the tightening cycle prematurely.
“Inflationary pressures on the global level still cause concern, even though world prices of energy, primarily electricity and gas and other primary products have been decreased,” the central bank said.
Serbia’s consumer-price index dropped in April for the first time in nearly two years, slipping to 15.1% from a 16.2% peak in March, though still far above the central bank’s target range of 1.5%-3.5%. Officials in Belgrade said last month that price growth was expected to slow to around 8% by end-year, while they may resume tightening if necessary by lifting the key rate or using alternative tools.
The statistics office will publish its consumer-price index for May on June 12.
–With assistance from Harumi Ichikura and Michael Winfrey.
(Updates with central bank comment, IMF context, from sixth paragraph.)
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