Serbia Holds Rate With Snap Election Set to Boost Spending

(Bloomberg) — Serbia extended an interest-rate pause tracking back almost two years, with policymakers weighing the impact of higher global oil prices and the government expected to embark on spending splurge ahead of a snap election.

The National Bank of Serbia left its benchmark one-week repurchase rate at 5.75% on Thursday, as expected by all economists in a Bloomberg survey.

Annual price growth slowed to the lowest level in more than five years in July, with President Aleksandar Vucic declaring that the authorities had “managed to defeat inflation” and the focus was now on the economic expansion.

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Driven by domestic demand and consumption, growth quickened to 3.6% in the second quarter and may get an additional boost as Vucic’s administration prepares €600 million ($692 million) in budget spending to help him return to the post of prime minister from the presidency to extend his rule.

Handouts for pensioners, subsidies for medicines and other forms of welfare for vulnerable groups are to take effect before early elections seen taking place in October or November, along with increases in public sector wages and pensions.

With headline inflation lower than expected in recent months and with no significant second-round impact from energy price surge caused by the war in the Middle East, policymakers see Serbia’s consumer-price index staying within their target range over the entire projection period through 2027, the central bank said.

Energy prices increased by 9.3% in July from the previous year, driven by oil products, according to the central bank. Core inflation, which excludes the most volatile items such as food and energy, stood at a “relatively stable” 4.5%, though it’s been above the headline figure since September.