Serbia Central Bank Leaves Benchmark Rate Unchanged At 1%

• National Bank of Serbia (NBS) decided to leave its benchmark rate steady at 1% as expected for a 14th straight month in today's meeting.
• We have seen that the NBS has not followed its CEE peers in recent months, where central banks have been raising rates aggressively to curb inflationary pressures.
• Economic data showed last month that inflation accelerated to 7.9% YoY in December (as exp.), up from 7.5% the previous month, diverging significant from the NBS 4.5% upper tolerance band.
• January inflation update will come out on Feb 22, expected to tick slightly higher.
• Policymakers are choosing to keep interest rates unchanged for two main reasons:
• First, it is likely that inflation is close to its peak and keeping rates low could limit the downside risks on the economic activity. Serbia is partly relying on its CEE peers' 'effort' (NBP, CNB and NBH), hoping that the gradual decline in inflation in H2 2022 will also have an impact on the domestic inflation.
• Second, the Serbian Dinar (RSD) seems pegged to the EUR at 117.60, therefore the NBS may mirror the ECB policy outlook in order to avoid currency interventions as rising interest rate differential will drive RSD higher (vs. Euro)

Source: Bloomberg/MNI