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Serbia’s central bank keeps benchmark rate at 3.50 percent

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Serbia’s central bank held its benchmark rate at 3.5 percent on Thursday, keeping its powder dry pending a possible U.S. rate hike next month and with the country’s dinar currency stable and inflation rate in check.

Ten of 11 analysts and traders polled by Reuters this week and last said the bank would leave the rate unchanged while one saw a 30 basis point cut.

The dinar has shown little reaction to two rate cuts in the past two months, having gained 4.1 percent against the euro since January. To tame its gains, the central bank has so far this year bought over 1.2 billion euros ($1.39 billion) on the local interbank market.

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Inflation rose to 3.2 percent in September, up from 2.5 percent a month earlier. The Statistics office is scheduled to release inflation data on Nov 13.

In a statement, the bank said low inflation and effects of policy easing so far, as well as country’s overall economic performance motivated it to keep the rate.

“Inflationary pressures remain low, as indicated by the slowdown in headline and core inflation over the past months, as well as the inflation expectations of the financial and corporate sectors,” the bank said.

It also said that so far in 2017, fiscal trends have been more favourable than expected, while risk premium fell to its lowest on record for Serbia.

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Last month, the bank argued mid-term inflation estimates and good fiscal performance had motivated it to cut rates.

Economic growth in the Balkan country has remained sluggish this year, due in part to a fall in electricity output in winter and a poor harvest due to months of drought.

In the final review of a three-year 1.2 billion euro loan-deal with Serbia on Tuesday, the International Monetary Fund cut its estimate for 2017 economic growth to 2 percent from 2.3 percent, but affirmed its 2018 forecast at 3.5 percent. After the rate decision the dinar traded at 118.72 to the euro, marginally stronger than the previous close of 118.76.

Source; KITCO

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