The National Bank of Serbia (NBS) is currently in a prolonged phase of maintaining its monetary policy, with the benchmark key policy rate stable at 5.75% since mid-2024. This rate reflects the central bank’s response to inflation pressures arising from post-pandemic conditions and the European energy crisis. As the economic landscape evolves, particularly by early 2026, there may be room for gradual easing of this rate as inflation dynamics improve.
Throughout 2025, Serbia’s headline inflation decreased steadily, moving from double-digit levels into the upper range of the target corridor, stabilizing around 3% ± 1.5 percentage points. Core inflation has also begun to soften towards the end of 2025, following earlier food and energy price shocks. The NBS has reiterated its commitment to anchoring inflation expectations but has acknowledged that maintaining high real interest rates may no longer be necessary.
The real policy rate in Serbia has turned positive, with easing inflation allowing for stronger real yields on dinar-denominated financial instruments. This shift has bolstered currency stability and encouraged domestic savings, as evidenced by growth in dinar deposits outpacing foreign currency deposits during parts of 2025. This trend provides the NBS with additional confidence that any modest rate reductions will not lead to significant capital flight or exchange rate instability.
External monetary conditions are also influencing Serbia’s economic environment. As global financial cycles evolve, particularly with signals from the European Central Bank and the Federal Reserve indicating an end to their restrictive policies, there is a reduced risk that easing domestic rates would create destabilizing interest rate differentials.
The dinar has been maintained within a controlled float corridor through active foreign exchange interventions. By the end of 2025, gross foreign exchange reserves exceeded €20 billion, providing a buffer against volatility and allowing for tactical flexibility in monetary policy adjustments without jeopardizing currency stability.
Fiscal-monetary interactions are another factor influencing potential rate cuts. Serbia’s fiscal position has stabilized compared to immediate post-pandemic years, with budget deficits narrowing and public debt remaining below 60% of GDP. The successful issuance of long-dated government bonds in 2025 indicates sustained investor interest in Serbian risk.
Serbian banks have entered 2026 with robust balance sheets characterized by strong capital adequacy ratios and improving asset quality. Non-performing loans have decreased, contributing to overall profitability despite rising funding costs. With deposit growth outpacing credit expansion, there is excess liquidity in the banking system, suggesting that a modest rate cut would mainly serve as a signal rather than a catalyst for destabilizing credit growth.
Credit dynamics present additional considerations; corporate lending growth slowed throughout 2025 due to weaker external demand and high borrowing costs. Meanwhile, household lending remained focused on housing and consumer loans under conservative underwriting practices. The NBS has noted no signs of overheating in credit markets but expresses concern about overly restrictive conditions potentially hindering investment as external factors improve.
Market expectations are aligning toward a scenario where cumulative easing of 50 to 75 basis points could occur in the latter half of 2026, likely implemented gradually over two or three steps. Such moves would align Serbia’s monetary policy with regional trends while maintaining a favorable real interest rate differential.
The timing and communication surrounding any potential cuts will be crucial. The NBS has indicated it will not act until there is clear evidence that inflationary pressures are under control. Key risk factors include food prices and energy imports, particularly given regional geopolitical volatility.
The central bank’s credibility has been bolstered through consistent communication focused on stability and predictability over the past decade. Any easing cycle is expected to be framed as conditional and reversible based on observable economic indicators rather than set timelines.
From a macroeconomic standpoint, gradual easing could lower debt servicing costs for businesses and households while improving investment conditions for capital-intensive projects. Nonetheless, the NBS emphasizes that monetary policy alone cannot drive economic growth without accompanying structural reforms and productivity improvements.
As Serbia approaches early 2026, it finds itself at a pivotal moment for monetary policy. While aggressive tightening measures are no longer necessary, uncertainties persist that prevent rapid normalization. The prevailing consensus suggests a carefully managed transition away from restrictive policies rather than abrupt changes, with an emphasis on preserving future options for adjustment as economic conditions develop throughout the year.
