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Serbia’s central bank to keep key rate at 4 percent

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Serbia’s central bank will keep its benchmark interest rate at 4 percent on Thursday, holding policy unchanged for a 13th month as it weighs economic pressures at home against uncertain monetary policy developments abroad.

All 13 analysts and traders polled by Reuters ECONALLRS this week and last said the central bank would keep the rate RSCBIR=ECI RSDREPO= on hold.

Last month, the bank said uncertainties in international markets motivated it to keep the rate steady.

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The U.S. Federal Reserve left interest rates unchanged last month and signaled that its balance sheet reduction process would begin relatively soon. The European Central Bank is also expected to scale back its quantitative easing (QE) program.

The Serbian central bank has stressed it expects inflation to remain within its 2017 target band of 3 percent give or take 1.5 percentage points. June inflation reached 3.6 percent, from 3.5 percent a month earlier.

“This will allow (the central bank) to maintain its accommodative monetary policy stance throughout this year and hold the key policy rate at current levels,” Eurobank said in an analysis.

The Statistics Office is scheduled to announce July inflation data on August 11.

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Slow growth is another factor in the policy mix, after Serbia’s economic output rose 1.3 percent year on year in the second quarter, according to a flash estimate — well below the International Monetary Fund and central bank’s 2017 forecasts of around 3 percent.

The dinar EURRSD= gained around 0.5 percent versus the euro over past 30 days on lending, demand and euro remittances from over a million Serbs working abroad.

To stabilize the exchange rate of the dinar, which it keeps in a managed float against the euro, the central bank so far this year purchased around 725 million euros on the local interbank market.

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