Serbia's central bank keeps benchmark rate at 3 percent

BELGRADE (Reuters) - Serbia's central bank left its benchmark interest rate at 3 percent on Thursday after cutting at the two previous meetings, even though the dinar currency remains strong and inflation low.

Eleven out of 12 analysts and traders polled by Reuters this week and last had said the central bank would keep the rate unchanged following two cuts in as many months. One expected a 25-basis-point cut.

So far this year, the dinar currency has gained around 0.4 percent against the euro.

Inflation fell to 1.4 percent year-on-year in March, below the central bank's target of 1.5 to 4.5 percent. The statistics Office will give April inflation data on May 11.

In a statement, the central bank said that inflation and the effects of its earlier policy easing, as well as uncertainties on international commodity and financial markets had motivated it to act cautiously and keep the rate unchanged.

"Caution is also needed because of the increasingly diverging policies of the (U.S.) Federal Reserve and the European Central Bank, and heightened uncertainty in terms of the pace of their normalization in the future," the bank said.

On Monday, Serbia and the International Monetary Fund started talks about a new, non-financial deal to support reforms for growth.

The resignation of Finance Minister Dusan Vujovic, who had negotiated a previous 1.2 billion euro ($1.42 billion) deal with the IMF, did not influence the bank's decision. Vujovic resigned on Monday, citing personal reasons.

The Serbian government, which ended 2017 with a small fiscal surplus, pledged it will raise public sector wages and pensions this year provided economic performance remains good.

Serbia's economy expanded 2 percent in 2017 and is forecast to grow 3.5 percent this year. Gross domestic product rose 4.5 percent in the first quarter of 2018, according to a flash estimate.

After the rate decision, the dinar traded at 118.2 to the euro, 0.05 percent weaker from Wednesday's close.

($1 = 0.8422 euros)

(Reporting by Aleksandar Vasovic; Editing by Catherine Evans)

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