National Bank of Serbia raises key interest rate to 6%

The deposit facility rate was also increased to 4.75%, while the lending facility rate was raised to 7.25%.

"Taking into account current and expected inflation developments, as well as risks arising from the international and domestic environment that could affect inflation, the Executive Board concluded that raising the key policy rate was an appropriate and timely measure to prevent significant secondary effects of the energy shock on other prices and ensure price stability over the medium term," the NBS said.

Middle East conflict drives up energy prices

Prolonged uncertainty in the international environment, caused by the conflict in the Middle East, has continued to affect global energy markets, pushing up not only oil prices but also those of natural gas and electricity.

At the same time, oil reserves used during the early months of the conflict to ease price pressures have gradually been depleted, adding further pressure to global energy markets, the NBS stated.

Refining margins have also increased, particularly for diesel, following damage to and destruction of refinery capacity in the Middle East and Russia.

Although the impact of the energy shock on global inflation and economic activity has so far been relatively limited, the risk of broader spillover effects is increasing as energy prices remain elevated for an extended period.

Higher energy costs could increasingly affect production and transport expenses, supply chains, inflation expectations, wages and the prices of other goods and services.

Inflation expected to exceed target range in 2027

Annual inflation rose to 4.1% in September, in line with the Executive Board's expectations.

The increase was primarily driven by a low comparison base from the previous year for food and household cleaning products that had been subject to government restrictions on retail margins.

Inflation was also affected by an annual increase of more than 17% in petroleum product prices, reflecting higher oil prices on the global market. The increase would have been even greater had the government not reduced fuel excise duties.

According to the Executive Board, persistently high energy prices, combined with rising global commodity prices, higher imported inflation and a low comparison base for food prices this year, are expected to result in a further gradual increase in inflation.

The central bank expects inflation to exceed the upper limit of its 3% target, with a tolerance band of ±1.5 percentage points, next year.

However, inflation is projected to return to the target range by the end of 2027 and gradually move closer to the target midpoint over the remainder of the forecast period.

Serbian economy grows faster than expected

According to the preliminary estimate from the Statistical Office of the Republic of Serbia, real gross domestic product (GDP) growth accelerated more than expected, reaching 4.0% in the third quarter of this year.

Growth was primarily driven by increased activity in the services sector, while agriculture and construction also made positive contributions.

Industrial production stagnated due to low water levels, which disrupted electricity generation and transport and, to some extent, production processes in the manufacturing sector.

The Executive Board expects economic growth this year to exceed its August forecast and reach at least 3.5%.

The NBS attributed the improved outlook to the Serbian economy's greater-than-expected resilience to international developments, as well as stronger agricultural production.

At the same time, the central bank has revised its 2027 growth forecast down to 4.0%, citing a higher comparison base this year, persistent geopolitical tensions and continued increases in global energy prices.

Domestic demand is expected to remain the main driver of economic growth, with both consumption and investment making positive contributions.

These are expected to be supported by rising disposable income and the implementation of infrastructure projects.

Next interest rate decision scheduled for December 10

The National Bank of Serbia said it would continue to monitor and analyse developments in domestic and international markets, making future monetary policy decisions on a meeting-by-meeting basis as new economic data becomes available.

Ensuring price and financial stability will remain the central bank's primary monetary policy objective, while also supporting continued economic growth and employment.

The next meeting of the NBS Executive Board, at which economic developments and prospects will be assessed and a decision on the key policy rate will be made, is scheduled for December 10, 2026.