Conflict on Middle East continues to create inflationary pressures, so it is expected that inflation remain well above the target for an extended period.
"The outlook remains very uncertain, with risks to rising inflation and falling economic growth," said European Central Bank (ECB) President Christine Lagarde. However, it raised expectations for GDP growth from 0,8 to 0,9 percent for this year, noting that the economy has shown resilience.
The influence of the ECB and loans in euros
Nenad Gujaničić, chief broker at Momentum sjekuritis, says that the decisions of the European Central Bank affect citizens to a greater extent than the decisions of the domestic central bank, Aleksandra Nenadović writes in The new economy.
The reason for this is that citizens mostly take loans indexed in euros, mostly with variable interest rates.
"The ECB raised interest rates twice this year by 20 to 25 basis points each (about half a percentage point in total). The six-month Euribor rose from around 2,1 percent in February to the current 2,88 percent, which represents a jump of 70 basis points after the latest increase. The market estimates that there is a high probability that the ECB will raise interest rates by the usual 25 basis points by the end of the year," he explains. Gujanicic.
The deposit rate of the ECB, which stood at two percent for a year, was first raised to 2,25 percent, and at the latest session it was increased to 2,5 percent.
As a rule, banks adjust Euribor with loan contracts twice a year (every six months, some three months).
Users of loans with a variable rate (consisting of the bank margin plus Euribor of 2,88 percent) have already seen or will see an increase in their monthly installments.
Price hikes everywhere: Is Serbia facing an inflationary blow in the fall?
The increase in loan prices is evident
Gujaničić says that the increase in credit prices is evident, but that interest levels have not yet reached the values of 2022 and that we are still far from them.
However, expectations that the conflict in the Middle East would last a short time were dashed, and the price of crude oil once again crossed the $100 per barrel mark.
Circumstances are further aggravated, says the broker, because strategic reserves of states and companies have been used up, which generates and maintains inflationary pressures.
Installment increase of about 50 euros
In Serbia, there are almost 10 billion euros of euro-indexed loans, the largest part of which are housing loans, says banker and consultant Vladimir Vasić.
In order for Serbia to regain monetary sovereignty in the field of lending, he explains, it is necessary for the dinar to become a long-term source of financing, which requires time and the establishment of stability in order to have enough dinar funds for placements.
Currently, the share of dinar housing loans is negligible and amounts to only one to two percent.
The reference interest rate of the NBS has remained unchanged for two full years at 5,75 percent, it was last changed on September 12, 2024, which indicates that it is more profitable for citizens to take loans in euros because they are cheaper.
Raising the reference interest rate of the ECB by 0,25 percent (25 basis points) is a gradual step and a signal to the market that money is becoming more expensive.
"Although the bankers have largely calculated the cost of money, the trend of price increases affects all euro-indexed loans," says Vasić and adds that for a typical home loan of 100.000 euros, this increase in the interest rate can increase the monthly installment by about 50 euros.
Dependence on Germany
But Serbia may face another kind of problem, although for now all indicators are mostly good, so the NBS is on alert.
Germany, as the largest economy of the European Union, recorded a modest growth of only 0,2 percent last year, and in the conditions of expensive money, these problems become even more pronounced.
Germany and Italy are Serbia's dominant foreign trade partners, says Vasić. If their economies slow down, the problem arises as to who the domestic economy will market its goods and services to.
Real journalism costs money, and we will not be bought by tycoons and corporations. Support us with a one-time or monthly donation. The time for it is now!
