Serbia’s inflation expectations are currently pegged at 3.8%, a figure that serves as a critical reference point for assessing future trends in inflation, interest rates, and credit conditions between 2026 and 2028. This expectation is within the National Bank of Serbia’s (NBS) target range of 3.0% ± 1.5 percentage points, indicating a controlled yet persistent inflation environment. The current scenario suggests that while inflation is not expected to return to pre-pandemic lows, it will remain stable enough to necessitate a moderately restrictive monetary policy.
The prevailing inflation expectation reflects market sentiments that Serbia can maintain stability without experiencing a resurgence of inflationary pressures. However, it also indicates that price growth is likely to stabilize near the upper end of the NBS’s target corridor, influenced by ongoing service sector inflation, wage trends, and sensitivity to imported costs rather than overheating demand.
In a stable macroeconomic environment—characterized by no significant global commodity shocks, effective management of exchange rates, and restrained wage growth—headline consumer price inflation is projected to average between 3.5% and 4.2% in 2026. This is expected to ease to a range of 3.0% to 3.8% in 2027 and stabilize further at approximately 2.8% to 3.5% in 2028. Year-end projections indicate consumer price index (CPI) figures of 3.3% to 4.3% for 2026, declining to between 2.8% and 3.8% in 2027, and settling around 2.6% to 3.5% in 2028.
From the perspective of monetary policy, the significance of the 3.8% inflation expectation lies in its implications for real interest rates rather than solely nominal policy rates. If the effective policy corridor remains between 5.0% and 6.0% in 2026, the real policy rate would range from +1.2 to +2.2 percentage points based on nominal levels. This real-rate environment is sufficiently restrictive to anchor expectations without excessively curtailing household credit availability.
The interplay between inflation expectations and interest rates is crucial for understanding credit dynamics in Serbia’s banking sector, which remains liquid but cautious. The credit-to-deposit ratio stands at approximately 80%, indicating banks are not facing funding shortages; however, they are exercising caution regarding risk assessment and lending practices. Total credit growth is anticipated to decelerate from late-2025 levels but will remain robust at around 9% to 12% in 2026, tapering off slightly to between 8% and 11% in 2027 and further down to a range of 7% to 10% in 2028.
Household lending is expected to lead this growth trajectory with increases of about 11% to 15% in 2026 before gradually moderating, while corporate lending is projected at a lower rate of approximately 6% to 9%. This reflects banks’ preference for prime borrowers and secured loans.
Despite favorable conditions, asset quality within the banking system is not static. With non-performing loans (NPLs) currently around 2%, a gradual increase is anticipated as portfolios mature and household-led credit growth continues. Projections suggest NPL ratios could rise to between 2.3% and 2.8% by the end of 2026, reaching approximately 2.5% to 3.2% by the end of 2027, and settling around 2.7% to 3.5% by the conclusion of 2028.
Potential stress scenarios highlight how quickly shifts in inflation can impact credit conditions. An external commodity shock—particularly affecting energy or food prices—could elevate headline inflation by an additional one to two percentage points for up to a year, potentially pushing CPI into the range of 4.8% to 6.0% for 2026 while keeping inflation closer to between 3.8% and 5.0% for the following year.
An exchange-rate depreciation could similarly disrupt expectations by raising tradables inflation significantly, with short-term expectations possibly rising from the current level towards between 4.5% and 5.5%. In such instances, maintaining credibility would compel the NBS to uphold tighter real rates, leading to sharper declines in credit growth—potentially down to between three and six percent—and widening disparities in NPLs based on borrower profiles.
A third scenario involves persistent wage-driven services inflation where nominal wages outpace productivity gains; this could keep core inflation elevated within the range of four percent to five percent even without external shocks occurring.
Overall, these scenarios frame Serbia’s macroeconomic outlook with an emphasis on maintaining discipline until inflation convincingly approaches around three percent again. For the banking sector, this means liquidity will be plentiful but credit expansion will be selective as households continue accessing loans while small and medium-sized enterprises (SMEs) may experience greater vulnerability amid macroeconomic fluctuations through the period leading up to late-2028.
