UPDATE 1-Serb central bank keeps rates on hold after finance shakeup
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BELGRADE, Sept 10 (Reuters) - Serbia's central bank kept interest rates on hold for the third month running on Tuesday given a weak dinar and market nerves over the appointment of a young, untested economist to tackle national finances.
The decision to keep the bank's benchmark rate at 11 percent was broadly in line with a Reuters poll in which nine dealers and traders saw no change and six predicted a cut of 25 basis points.
Although slowing inflation had allowed the bank to trim borrowing costs in May and June, fears over the size of Serbia's budget deficit and public debt have grown with the ouster of Finance Minister Mladjan Dinkic in late July.
The dinar was already under pressure from investor concern about how soon the U.S. Federal Reserve might tighten the supply of cheap dollars that have supported high-yielding emerging markets.
The bank, in a statement, cited "risks in the international environment, primarily on international financial and commodity markets."
It said considerations over how the Federal Reserve might act had seen investors "lowering their readiness to take risks, which in turn resulted in depreciation pressures throughout the region, and in Serbia."
Dinkic was replaced last week by Lazar Krstic, a 28-year-old former McKinsey consultant who has promised "comprehensive" reform of the public sector but brings no political expertise to the job.
The Yale graduate told Reuters last week he was convinced he had the support of the fractious ruling coalition for the tough measures he says are essential to steadying Serbia's finances and securing a new loan deal with the International Monetary Fund.
The budget shortfall is set at 4.7 percent of national output for the year, but is almost certain to be higher. Public debt is set to reach 65 percent, higher than the IMF recommends for similar emerging economies.
The central bank said current investor aversion to risk could be compensated for by fiscal consolidation and structural reform in Serbia, "which will have positive effects on investor perceptions of investing in Serbia, contribute to a lowering of internal and external imbalances, lowering of inflation and sustainable growth."
Handpicked by the ruling coalition's biggest party, the Serbian Progressive Party, Krstic could yet face resistance from the left wing of the alliance, raising the risk of a snap election in early 2014.
The central bank intervened twice on the currency market this week and last, selling a total of 20 million euros ($26.51 million) to stem dinar losses.
On Tuesday, the currency traded at between 115.15 and 114.30 to one euro, little changed from an average of 114.95 a day earlier. ($1 = 0.7546 euros) (Reporting by Aleksandar Vasovic; Writing by Matt Robinson; Editing by Ruth Pitchford)
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