The Executive Board of the National Bank of Serbia (NBS) decided to keep the key rate unchanged at 6.5% after it was last time hiked in July (+25bp). At the same time, it raised mandatory reserve rate to keep a stable money supply.
This year has been a real roller coaster ride so far. While it started with euphoria after the worst-case scenarios concerning the energy crisis did not materialize and China's end to its zero-COVID policy, disillusion has now replaced the high hopes that accompanied China's reopening. Data in Europe and China lag behind expectations and fail to meet forecasts. The dollar and Swiss franc traditionally benefit from this environment, while the euro and yuan, as cyclical currencies, lose momentum. In Russia and Hungary, disappointing fundamental data also resulted in a weaker performance of the national currencies. The Serbian dinar defied this. Although geopolitical risks and economic data would actually argue against the dinar, foreign currency inflows continue to support it.
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While the major central banks are now debating about when to conclude their hiking cycles, in CE it is already about the timing of cuts. This results from a rapid disinflation, gradually visible also in core inflation. However, upside risks remain stemming especially from labour markets. Therefore, the easing cycles will take longer than the hikes but by the end of this year rates should be in decline in CE, with Romania following in 2024. Hikes may still be on the cards in Serbia, and even more in Albania.