BELGRADE: Serbia's central bank cut its main interest rate for the third straight month on Monday by 50 basis points to 6.50 percent, citing a weak economy, low inflation and a relatively stable dinar currency.
Nine of 14 bankers and analysts polled by Reuters last week had predicted the cut.
Five said the bank would keep the rate, still the highest in the region, on hold.
The bank said it felt able to cut again because of weak demand and persistently low inflation in Serbia, while "movements in the international environment are also more favourable", it added, noting quantitative easing by the European Central Bank and the US Federal Reserve's delay in raising its rates.
The Serbian bank lowered rates last month citing low inflation and the impact of public spending cuts under a loan deal with the International Monetary Fund intended to save 1.3 billion euros ($1.5 billion) by 2017.
Inflation in Serbia remained well below the bank's 2015 target of between 2.5 and 5.5 percent.
Earlier, the bank said inflation should return within the target range after a expected rise in regulated prices, including electricity, tentatively set for the second half of the year.
In March inflation stood at 1.9 percent, up from 0.8 percent in February.
The Statistics Office is due to release April inflation data on May 12.
Both the IMF, which this year recommended cautious easing of Serbia's monetary policies, and the central bank have said they expect the economy to contract for the second straight year.
But Prime Minister Aleksandar Vucic has said he expects the lender to revise up its growth forecast to between 0 percent and 0.5 percent.
The bank also narrowed its corridor for interest rates in relation to benchmark rates from plus or minus 2.5 percent to plus or minus 2 percent. "Such a measure should stabilise interest rates on the interbank money market," the statement said.
A mission from the Washington-based lender is expected to end its review of Serbia's compliance with the terms of the 1.2 billion euro three-year loan deal on Monday.
The dinar EURRSD=, kept in a managed float by the central bank, has gained around 0.4 percent on the euro this year helped by the European Central Bank's strategy of quantitative easing.
After the bank's decision, the dinar traded at 120.75 per euro, or 0.04 percent stronger from Friday's close.
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