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Serbia’s central bank expected to keep key rate at 3.75 percent

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Serbia’s central bank is expected to keep its benchmark rate at 3.75 percent next Monday after cutting it by 25 basis points last month, because its currency is stable, inflation is subsiding and the Federal Reserve is expected to raise U.S. rates in December.

Eleven out of 12 analysts and traders polled by Reuters this week and last said the central bank would leave the rate unchanged. One saw another 25-basis-point cut.

This week, Serbia’s currency, the dinar, traded above 119 to the euro. The country has seen an increase in foreign investment after the JP Morgan included Serbian assets on its trading list, and exports, remittances and dinar lending have increased.

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Inflation, meanwhile, is slowing. Consumer prices rose in August at a 2.5 percent annual rate, compared with 3.2 percent in July.

And Fed policymakers have signalled another increase in U.S. rates may be needed in December, with more to come next year. Such a move would tend to deter investors from emerging markets like Serbia.

Last month, the Serbian central bank argued its surprise 25- basis-point rate cut was aimed at boosting lending and growth, after 13 months of keeping the rate steady.

Hrvoje Stojic, the economic research director at Addiko Bank, said Serbian policymakers would decide to remain cautious this month.

“We .. expect the (Serbian) central bank to keep the key interest rate unchanged … given the recent dinar stability, gradual recovery in inflation in Q4, renewed fiscal expansion and greater chances for Fed tightening in December,” Stojic told Reuters.

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Serbian growth remained sluggish this year. A fall in electricity output in winter and a poorer harvest than expected prompted the International Monetary Fund to cut its estimate for 2017 economic growth to 2.3 percent from 3 percent. It kept its 2018 forecast at 3.5 percent.

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