Rising food prices are set to push Serbian inflation above target in October, prompting the central bank to raise the key policy rate 50bp to 9.5 per cent. This is the third rate rise by the National Bank of Serbia since it starting raising rates from a record low of 8 per cent in August.
Inflation in September was 7.7 per cent, within its tolerance band of 6.5±2 per cent; next month, however, inflation is projected to rise above its upper limit of 6.3±2 per cent.
The Bank largely attributes inflation to “the temporary rise in food prices” from poor harvests worldwide, and says the recent weakening of the dinar will continue to feed through to higher import prices for some time to come. The 50bp rate rise should encourage capital flows into Serbia, dampening or reversing the currency’s decline. This in turn could add to inflationary pressures, though higher rates will discourage domestic credit-fuelled spending.