May 12, 2022 07:56 GMT
- This morning, economic data showed that Serbian inflation accelerated to 9.6% in April (vs. 9.5% exp.), its highest level since June 2013, up from 9.1% the previous month.
- We saw last month that National Bank of Serbia (NBS) surprised the market on April 7th and raised its benchmark rate by 50bps to 1.50% (vs. 1.25%).
- It was the first time that the NBS raises its policy rate in the past 9 years after gradually cutting its 1W repo rate from 11.75% in March 2013 to 1% in December 2021.
- The chart below shows the sharp divergence between Serbia inflation rate and the policy rate in the past year.
- 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.
- However, the new inflation shock has ‘forced' NBS policymakers to act and therefore surprised the market with a ‘hawkish hike’.
- The NBS is meeting today (11pm London time), and analysts are expecting the central bank to leave its repo rate unchanged.
- We expect a more hawkish tone today; odds of another 50bps surprise is likely following the recent CEE decisions with market participants constantly revising their terminal rate to the upside.
- For instance, we saw that Romania Central Bank accelerated the pace of its tightening cycle this week by hiking its benchmark rate by 75bps to 3.75% (vs. 3.50% exp.).