BLOOMBERG: Dinar second-best performing currency in the world over the last 12 months

Last month, the Serbian dinar touched the strongest level against the euro in more than three years, making it the second-best performing currency in the world over the last 12 months, Bloomberg estimates.

The National Bank of Serbia (NBS) surprised with its third unexpected interest-rate cut in seven months on Wednesday, a further reason, Bloomberg estimates, for investor optimism over local-currency bonds that have outperformed all of their regional peers this year.

The New York-based agency says that Serbia is going against the tide of a gradual shift toward policy tightening across most of the continent. The Balkan country has little need for rate hikes any time soon, with inflation slowing to the bottom of the central bank’s target range in February and continued appreciation in the dinar.

– Sentiment is positive toward the bonds – said Stephan Imre, a strategist at Raiffeisen Bank International AG in Vienna who recommends buying the notes.

Inflation slowed dramatically to 1.5 percent last month, half the rate seen in December and a 15-month low.

Weak price pressures will persist for months to come, and inflation will only gradually approach the 3 percent target in the middle of next year, policy makers said in a statement after Wednesday’s meeting.

Serbia’s 10-year notes still offer a yield of 5.88 percent, more than double the rate on Hungarian and Czech securities, Bloomberg says and adds that the former Yugoslav republic is one of few nations in eastern Europe that still offers a positive real yield on short-term investments.

The Executive Board of the NBS cut down the key policy rate from last year's 3,5% to 3.25% at a session held on March 14, 2018.

Narodna banka Srbije Beograd

NBS

key policy rate

dinar stability

dinar exchange rate

euro exchange rate

dinar appreciation

inflation

Stephan Imre

dinar value

dinar value compared to euro

value of Serbian bonds

Bloomberg