Serbia Holds Rate; Election Pledge Poses Inflation Risk

(Bloomberg) – Serbia left borrowing costs at 5.75% for a record 22nd straight month, matching the consensus of economists surveyed by Bloomberg. The annual inflation rate eased to 2.7% in June from 3.5% in May, the government said Tuesday, ahead of the official statistics office release next week.

Consumer price growth may get a lift from President Aleksandar Vucic's €600 million ($686 million) pledge to improve living standards for nearly half of Serbia's 6.6 million people. The plan includes one-off support for pensioners, subsidized medicines and other welfare for vulnerable groups. Vucic has said an early election should be held in October or November, though no date has been set.

The central bank has warned that inflation will probably stay within the 1.5%–4.5% target band until the fourth quarter, when it may breach the upper boundary. The bank sees it returning to the range in the first half of 2027.

Domestic demand and consumption already drive growth, which accelerated to 3.2% in the first quarter from 2% in 2025. Vucic dismissed spending concerns, saying state revenues exceed projections and may even justify a budget revision due to "increased inflows, not because of expenditures."

Core inflation, which strips out volatile items like food and energy, reached 4.5% in May. It has run above the headline figure since September, reflecting underlying domestic pressures such as wage increases and consumption. The Middle East conflict pushed oil costs higher this year, adding to Serbia's inflation.

The rate hold signals that the central bank sees the current policy stance as adequate for now, even as election-linked spending risks building further price pressures. The next scheduled monetary policy meeting is in August.