By Gordana Filipovic

BELGRADE, Nov 5 (Reuters) - Serbia's central bank cut its main interest rate by 100 basis points to 10 percent on Thursday in an easing of monetary policy on an improved outlook for inflation.

Many analysts in a Reuters poll earlier this week had expected a hold by the bank, but it was a close call and Serbia on Wednesday got a boost from the IMF's preliminary approval for the release of more of its agreed aid.

At a news conference, Governor Radovan Jelasic said Serbia's gross domestic product in the third quarter was likely to have grown by 4.1 percent, bringing the year-on-year contraction to 2.3 percent. He also said the central bank expected a full-year contraction at 2.8 percent, less than a previously forecast 3 percent.

The cut in the two-week repo rate was the bank's seventh move on rates in 2009. It last cut the repo rate was on Oct. 8, when it cited tame price pressures and the stable dinar.

'The monetary board unanimously decided to cut the benchmark rate partly because of disinflationary impact of aggregate demand even though economic activity in the third quarter posted growth for the first time after more than a year,' Jelasic said.

The bank also cited lower inflationary expectations, successful completion of talks with the IMF and dinar stability.

Inflationary pressures were coming from higher global crude oil prices and the fact that the government was financing its deficit by cutting deposits with the central bank rather than via greater debt issuance, Jelasic said.

The dinar was little changed after the decision.

On Wednesday, Jelasic pledged lower rates and relaxed reserve requirement rules, with the IMF also pointing to positive signs on prices.

A year from now, the fund saw inflation within a 4-8 percent range, down from 6-10 percent in 2009.

But Serbia and the dinar have still had a bumpy ride since last year's financial turmoil stemmed flows of investment and financing to the developing Balkan economy, and the bank is also being careful not to let demand recover too fast.

(Reporting by Gordana Filipovic; writing by Aleksandar Vasovic; editing by Victoria Main) Keywords: SERBIA RATES/

(gordana.filipovic@thomsonreuters.com; +381 11 3044 914)

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