(Bloomberg) -- Serbia will probably cut borrowing costs for the first time in more than three years after inflation slowed and the European Central Bank led the way toward monetary easing. 

The National Bank of Serbia is expected to reduce its benchmark one-week repurchase rate by 25 basis points to 6.25%, according to 11 out of 17 analysts in a Bloomberg survey. The rest see no change this month, even as inflation fell, in line with forecasts, to 4.5% annually, the upper end of the 1.5%-4.5% tolerance band.

“After the ECB’s first rate cut on June 6th, we think that the National Bank now has room to start its cautious easing cycle with a similar 25 basis point cut,” Bank of America said in a note on Monday. The bank’s sovereign strategist, Vladimir Osakovskiy, also sees further easing by a cumulative 100 basis points later this year.  

Policymakers in Belgrade have held the benchmark at 6.5% for ten months after battling a surge in inflation with their steepest monetary tightening on record from April 2022 through July last year. Inflation peaked in March last year at 16.2%, but has gradually returned to the target range.

Still, core inflation was higher than the consumer-price index in May. This could prompt rate setters to postpone the start of monetary easing to July, according to UniCredit SpA economist Mauro Giorgio Marrano, who nevertheless anticipates a quarter-point cut this month. 

Most factors — falling inflation, the ECB cut and appreciation pressure on the dinar — are now aligned for Serbia to embark on rate reduction, yet “momentum in core inflation remains sticky” amid strong domestic demand and accelerating cash loans in dinars, according to Marrano.

“We assume the NBS will cut rates from 6.50% to 5.50% in 2024 and further to 4.50% in 2025, thus broadly mirroring the ECB’s projected easing path,” Marrano wrote in a June 7 note.

--With assistance from Harumi Ichikura.

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