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By Gordana Filipovic
BELGRADE, April 22 (Reuters) - Serbia's central bank on Wednesday cut its key policy rate by 100 basis points to 14.0 percent, amid government calls for cheaper dinar loans to prop up economic activity and ensure new jobs.
The decision appeared to have been widely expected by the market, with banks citing the central bank's invitation to a repo auction earlier in the day without specifying the rate.
"Disinflationary pressures, a fall in aggregate demand, weaker economy and a stabilised dinar (exchange) rate were the key reasons for cutting the rate today," central bank Governor Radovan Jelasic told a news conference.
The invitation to the repo auction had already weighed on the market, with the dinar currency easing 0.5 percent on the day, to trade at 93.70/euro in interbank market.
The central bank last cut its two-week repo rate by 150 basis points to 15.0 percent on April 6, following reports on easing inflation, weakening economic activity and growing job losses.
Jelasic also said that Serbia's gross domestic product will contract by 5 to 7 percent in the first quarter of 2009 on "(a) year-on-year fall in industrial output and falling global and domestic demand as well as sinking liquidity".
"The Serbian central bank sees full year GDP contraction beyond 2 percent in the absence of 1 billion euros project financing," he said.
Serbia's inflation fell back to single digits in March, industrial output contracted for the third consecutive month in February to a four-year low, and around 2,500 people have been losing their jobs each month due to the economic downturn. Jelasic said that the consumer price index at the end of the second quarter will remain "closer to the lower end of 8 to 12 percent" target range.
The rate decision was made only days after the central bank offered liquidity incentives to all banks in Serbia that agree to maintain their exposure to the market unchanged through 2010. (Reporting by Gordana Filipovic; Editing by Ron Askew and Andy Bruce) ((gordana.filipovic@thomsonreuters.com; +381 11 311 4254;Reuters Messaging: gordana.filipovic.reuters.com@reuters.net))