The National Bank of Serbia (NBS) has released its interest rate statistics for June, marking the first month after both the NBS and the European Central Bank reduced their reference rates. This change raises questions about the impact of this monetary policy adjustment on dinar and foreign currency loans.
According to the NBS, the reduction in the reference rate led to a near-complete decrease in interest rates on the interbank money market. This is expected to result in lower loan rates in the near future. However, it might be too early to gauge the full impact based on June’s data alone. Analysts have anticipated a potential “monetary belt loosening” since February, similar to the last instance in December 2020.
The easing of monetary policies globally has followed a period of stringent central bank measures aimed at controlling inflation. The European Central Bank signaled a decrease in inflation in June, prompting the NBS to also lower its reference rate by 0.25 percentage points.
In response to inquiries about trends in interest rates, the NBS indicated that both dinar and euro-denominated loans have seen a modest decline since the end of last year, coinciding with reduced inflationary pressures and expectations of policy easing by both the NBS and the ECB.
For June, the average weighted interest rate on new dinar loans was 10.1%, down from 10.5% in December 2023. Similarly, the interest rate on euro-denominated loans decreased to 6.6% from 7% in December. The NBS noted that while interest rates on the money market react quickly, the effect on loan rates takes longer to materialize.
The NBS also forecasts a continued decline in interest rates on euro-denominated loans, given the ECB’s recent rate cuts, which have influenced lower rates on the euro money market.
In June, the average weighted interest rate for new dinar loans to households and businesses was 10.14%. Loans to households decreased to 11.68% from 12.07% in May, while loans to businesses saw a slight increase to 8.1% from 8.03%. Foreign currency loans for households averaged 6.13%, down from 6.22% in May, and loans for businesses decreased to 6.68% from 6.81%.
Consumer loans in dinars and foreign currencies with maturities of up to one year became cheaper in June, with rates dropping to 6.23% from 7.37% in May. Conversely, foreign currency cash loans up to one year saw a rise in rates to 4.11% from 3.1%.
Regarding the impact on credit activity, the NBS observed a significant increase in domestic loans to the private sector. Year-on-year growth accelerated to 4.7% in June, compared to 1% in December 2023. This growth was driven by both business and consumer lending, with increased demand and relaxed credit standards contributing to the trend.
The NBS anticipates continued growth in credit activity, supported by rising investments and private consumption. A recent survey indicated that most banks expect credit activity to grow this year and next, with many predicting an increase of more than 5%.
