(Bloomberg) -- Serbia raised its borrowing costs to the highest level in more than seven years in its campaign to tame surging inflation, turning aside concerns for now over a sharp slowdown in economic growth.
The central bank in Belgrade lifted its one-week repurchase rate by half a percentage-point to 5% on Thursday, in line with the forecasts of 11 of 15 analysts in a Bloomberg survey. Four economists expected a 25 basis-point increase with the economy losing steam. Policy makers also shifted the deposit and credit rates to 4% and 6% respectively, amid the fastest rise in borrowing costs in more than a decade.
“The National Bank of Serbia continues to tighten monetary conditions to limit secondary effects of price increases through inflationary expectations,” the central bank said in a statement on its ninth hike in as many months.
Serbia’s economy is “still facing significant price pressures from the international environment, although there are signs that they are easing,” the central bank said.
Headline inflation hit 15% in October, the highest rate since at least 2007, with a Bloomberg survey projecting a peak at 15.1% in November. Core inflation, which excludes the most volatile items, has long exceeded the Balkan nation’s tolerance band of 1.5%-4.5%, with the figure coming in at 9.5% in October.
The National Bank of Serbia maintains that its policy moves have limited impact on consumer prices, because inflation drivers are mostly imported through energy and food costs. The Balkan nation relies on fuels from abroad and the energy crunch was further aggravated by insufficient power production. The dominant state utility, Elektroprivreda Srbije, or EPS, was forced to import electricity to cover consumption.
Serbia’s economy has been slowing since the middle of last year, registering a 1% annual expansion in the July-September period. The central bank has twice revised downward its 2022 growth forecast, now at between 2% and 3% — and moderated its outlook for the next year to the same level.
Still, price pressures are not entirely external. The government has pledged to keep adjusting public sector wages and pensions paid from the dominant state fund to protect living standards. Policy makers have also twice revised their forecast for a return of the annual inflation to the target range, now pushed back to the second half of 2024.
--With assistance from Harumi Ichikura.
(Updates with central bank comment from second paragraph)
©2022 Bloomberg L.P.
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