August 11, 2022 10:12 GMT
- The National Bank of Serbia (NBS) maintained the pace of its tightening cycle in July and hiked the policy rate by 25bps to 3% (as expected).
- It is the fifth time that the NBS is raising its benchmark rate (NBS has tightened by 200bps in total since March) as inflationary pressures have remained elevated in the entire CEE region.
- Economic data showed last month that Serbian inflation accelerated to 11.9% in June (vs. 10.6% exp.), its highest level since February 2013, up from 10.4% the previous month.
- Next CPI print will come out on August 12, with CPI expected to increase to 12.3 % in July.
- Prior the Ukraine war, it is likely that Serbia had been 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. This explains why Serbia has the lowest policy rate among the CEE region (after Bulgaria).
- In addition, as the Serbian Dinar (RSD) seems pegged to the EUR at 117.60, 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).
- To the exception of Bulgaria, all central banks in the CEE region have now entered a tightening cycle (chart below).