Serbia raises rates for the first time since 2013 to tame high inflation
(Bloomberg) – Serbia has raised its main interest rate for the first time in nearly a decade, joining its Eastern European peers who have been raising borrowing costs for months to combat the accelerating inflation and fallout from the war in Ukraine.
The National Bank of Serbia on Thursday raised the one-week repurchase rate to 1.5% from a record high of 1%, beating the median forecast from a Bloomberg survey. Six analysts were forecasting a quarter-point rise, while four were expecting a 1.50% rise. Eight saw no change.
Serbia’s first hike since 2013 comes after headline inflation jumped to 8.8% in February, the fastest in nearly nine years and well above the central bank’s tolerance band of 1, 5% to 4.5%. Consumer price growth is expected to accelerate further, according to the survey.
The first in Europe to cut rates when the pandemic hit the continent in 2020, Belgrade officials had sought to avoid swings in the benchmark and underpin a recovery that saw the economy grow by 7.5 % Last year.
Serbian rate regulators have now abandoned their wait-and-see approach to join the wave of monetary tightening in the region. Hungary, Romania, Poland and the Czech Republic repeatedly raised policy rates while Serbia relied on other measures, namely halting operations to provide cheap dinar liquidity to banks and pay more to drain excess funds from the market.
Multiple pressures converged to trigger the rise. Soaring commodity prices are increasing inflation risks and Serbian bonds were among the hardest hit in Central and Eastern Europe following Russia’s invasion of Ukraine. In addition, defending the dinar against depreciation has required strong central bank interventions in recent months.
Keen to keep the dinar in a tight range against the euro, the central bank has been a net buyer of euros for most of 2021, but its trade balance reversed in October. It sold 1.4 billion euros net ($1.5 billion) over the five months to February to fend off downward pressure.
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