Serbia Inflation Surges To February 2013 Highs

• This morning, economic data showed 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.
• Last week, the National Bank of Serbia (NBS) decided to slow down the pace of its tightening cycle and raised its repo rate by 25bps to 2.75%, below analysts predictions (3% exp.).
• It is the fourth time that the NBS is raising its benchmark rate (NBS proceeded with three 50bps hikes at the previous meetings) as inflationary pressures have remained elevated in the entire CEE region.
• 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, embarking in a gradual tightening cycle since the beginning of March.
• Can the NBS maintain a 'dovish' stance (i.e. 25bps hike steps) given the elevated level of inflation?

Source: Bloomberg/MNI