Serbia likely to hike rates

BELGRADE (Reuters) – Serbian central bank Governor Radovan Jelasic said yesterday the bank would most likely have to increase interest rates further to maintain price stability. The National Bank of Serbia raised its two-week repo rate by 75 basis points for the second time in February, to 11.5 percent on February 28, trying to offset the weakness of the dinar in the aftermath of Kosovo’s secession. «The way things are, the National Bank will have to additionally tighten monetary policy to ensure price stability,» Tanjug news agency quoted Jelasic as saying. «If previous interest rate increases fail to achieve this, no one should be surprised if we additionally tighten,» he said. Core inflation, targeted in a 3-6 percent band for 2008, stood at 6.5 percent in February. Headline inflation, which includes state-controlled prices, hit 11.3 percent. The bank is worried at signs of growing price pressures that could jeopardize its target. The government has approved a 7.6 percent electricity price hike, and bread prices have risen by 30 percent already this year. Meat prices are due to rise by 10 percent and a liter of petrol will breach a psychological barrier this week to retail at 101 dinars. Jelasic said that as of July, the bank will tighten credit rules for households to curb demand and lower a risk of defaults among retail clients.

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