(Adds central bank quotes)
BELGRADE May 14 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. The bank kept is gross
domestic product forecast for this year at 1 percent.
In its quarterly report on inflation the bank said it
expects inflation to remain around the lower end of its target
range between 2.5 and 5.5 percent.
April inflation stood at 2.1 percent.
"The government hinted fiscal consolidation measures will be
stronger than previously expected," the bank said adding more
details on the measures will be announced later in the year.
"(The stronger measures) will result in decline of spending
and strengthening of disinflation factors."
Serbia's consolidated budget deficit is forecast at 7.1
percent of national output, but analysts warn it will exceed 8
percent unless additional savings are made.
Prime Minister Aleksandar Vucic who took over last month
pledged root-to-branch reform to overhaul the ailing economy and
committed to painful spending cuts in the bloated public sector
He announced a 10 percent wage cut for all public sector
workers as of July and said his government will consider later
this year whether a pension cut would be necessary as well to
cap the deficit.
Serbia is in talks with the International Monetary Fund on a
3-year precautionary loan deal that would reassure investors the
EU candidate country will get its finances in order and be able
to service the debt that reached 63 percent of national output.
(Reporting by Ivana Sekularac; Editing by Toby Chopra)