Serbia's central bank says Ukraine crisis, austerity measures to drive future rate cuts

BELGRADE Wed May 14, 2014 4:30am EDT

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BELGRADE May 14 (Reuters) - The scope of future Serbian monetary policy easing will be determined by the effects of the Ukrainian crisis and how the government implements its fiscal consolidation measures, a central bank report said on Wednesday.

Serbia's central bank cut benchmark rate by 50 basis points to 9 percent last week on slowing inflation and after the new government pledged to cut spending.

In its quarterly report on inflation the bank said future rate cuts will depend on potential investors' risk aversion caused by crisis in Ukraine as well as on the success of the government's austerity measures.

"The Ukrainian crisis could have negative effects on Serbia through a (external) price rise of energy and food," the bank said. "Also it could cause risk aversion among investors and their decision to reduce exposure in emerging markets."

It said the government's fiscal cuts will hamper domestic demand in 2015 and keep growth below its forecast of 2 percent, but it did not give more precise figure. (Reporting by Ivana Sekularac; Editing by Toby Chopra)

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