Serbia: August Inflation Report summary
Overview:
Inflation is falling sharply as the National Bank of Serbia (NBS) predicted in its previous report. This is largely due to weak food prices creating a favourable base effect. Underlying inflationary pressures remain soft due to weak growth and high unemployment. This has persuaded the NBS to stop its rate hiking cycle and reduce its key policy rate by 75bps so far (to 11.75%). However, it left rates on hold at its last monetary policy meeting. It sees inflation returning to target in the first half of next year. There may be room for some further small rate cuts. However, the NBS sees a significant amount of uncertainty to its outlook at the moment. This relates both to extreme volatility on global financial markets (which could weaken the dinar) and to the course of fiscal policy ahead of elections. An IMF deal would help here.