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Serbia’s central bank to hold benchmark rate at 4 pct

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Serbia’s central bank will hold its benchmark interest rate steady at 4 percent on Tuesday mainly due to uncertainty abroad, relatively low inflation and an upcoming presidential vote, a Reuters poll showed.

All 13 analysts and traders polled by Reuters this week and last said the central bank will keep the rate , unchanged at 4 percent.

Last month, the bank cited pressures from abroad that could make investors shy away from emerging markets, including possible further rate increases by the U.S. Federal Reserve, as reasons for keeping the rate steady.

Although it last year sought rate cuts the International Monetary Fund, which maintains a 1.2 billion three-year loan-deal with Serbia, changed its position in 2017 saying that the outlook depended on external developments.

“We are not pushing any more … The rate is appropriate at the moment,” James Roaf, the head of the IMF mission for Serbia said earlier this week.

Serbian inflation rose to 2.4 percent in January, up from 1.6 percent a month earlier but well inside bank’s 2017 target corridor of between 1.5 percent and 4.5 percent. The Statistics Office will release the February figure on March 13.

In an analysis, the Erste Group said that the central bank may opt for a rate hike later in the year.

“The NBS (National Bank of Serbia) could start to reverse its loose policy stance in the second half of 2017 by increasing the key rate towards 4.5 percent, as we expect a pick-up in inflation and Fed tightening,” it said.

The dinar has lost 0.4 percent against the common currency so far this year, prompting central bank to sell a total of 330 million euros to prop it up.

Also on policymakers’ radar will be the April 2 presidential election which pits current Prime Minister Aleksandar Vucic against candidates from a fragmented and bickering opposition.

The vote serves as a test of popular support for Vucic and his government’s economic reforms and a bid to speed up accession to the European Union, while maintaining close ties with allies Russia and China.

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