In Serbia, interest rates on housing loans are capped by the National Bank of Serbia (NBS) at a maximum of five percent. However, with the European Central Bank (ECB) recently lowering its reference interest rate, and a decline in the Euribor, to which local banks tie housing loan repayments, many are wondering whether interest rates on housing loans in Serbia will follow suit.
Starting this year, new regulations have come into effect in Serbia regarding borrowing costs. Not only have interest rates for housing loans been limited to a maximum of five percent, but caps have also been placed on cash and consumer loan interest rates, credit card fees, and overdraft charges. With the NBS recently maintaining its reference interest rate at 5.75 percent, this suggests that interest rates on dinar loans may not drop in the near future, at least not until the NBS announces a new decision on the movement of this rate on March 13.
However, the European Central Bank (ECB) cut its interest rate by 0.25 percentage points on January 30, effective February 5. This reduction could potentially lead to a decrease in loan prices in Serbia, particularly for loans denominated in euros, as the majority of housing loans are tied to the euro, with few being in dinars.
Financial consultant Vladimir Vasić explains that the NBS reference interest rate governs Serbia’s domestic money market. “With inflation at 4.3 percent (December 2024 to December 2023), the NBS is keeping the reference rate steady in order to control inflationary pressures,” says Vasić. He points out that inflation still poses a challenge, citing factors such as consumer boycotts of shops. This cautious approach aims to avoid fueling inflation further.
Vasić notes that while maintaining a higher reference interest rate can help control inflation, it can also slow economic activity. “It is very likely that the NBS will reduce interest rates more sharply if economic activity continues to slow down, as this will encourage borrowing and consumption,” he says. This could eventually align with the ECB’s approach of reducing its own interest rate to boost economic growth, a move that may have ripple effects in Serbia as well.
Currently, the six-month Euribor—the rate tied to many housing loans in Serbia—is at 2.5 percent, and the bank’s margins (the additional percentage that banks charge above the Euribor) typically range from 2.5 to 3 percent. Vasić suggests that if the Euribor falls below 2 percent by the end of the year, total interest on housing loans in Serbia could drop to around 4.5 percent, below the current cap of five percent set by the NBS.
A change in rates will depend on the adoption of a new law. In December 2024, the NBS adopted a decision to limit housing loan interest rates to a maximum of five percent, effective from January 1, 2025. The new law also capped interest rates for dinar cash and consumer loans, credit cards, and overdrafts. However, the law was delayed in the National Assembly, preventing the provisions from taking effect as originally planned at the start of the year.
As the NBS continues to monitor inflation and economic conditions, it remains to be seen whether interest rates will continue to trend downward, particularly for loans tied to the euro.
