Serbia: November Inflation Report Summary
Overview:
The National Bank of Serbia (NBS) maintains the view that CPI will return to its target range by the first quarter of 2012. Inflation has dropped sharply in the last few months, the dinar is relatively stable and with aggregate demand weak underlying inflationary pressures are soft. On the basis of this the NBS has already cut its key interest rate a number of times and retains an explicit bias to do so further in its latest Inflation Report. The key risk factor here would seem to be the dinar. Balance of payments data show a surplus so far this year. However, this is largely due to heavy debt issuance and one large FDI deal. Without these temporary supports (and with worsening sentiment on the global financial markets) a currency that has appreciated significantly in real terms despite a weak economy could easily prove vulnerable.