Serbia’s expansion strengthened over H1, with 2Q26 growth revised up to 3.8% from a 3.6% flash, lifting the H1 average to 3.5% versus the 3% assumed in the government budget. The FY26 real GDP forecast is raised to 3.4% from 2.9%, while FY27 is kept at 4.0%, with the Expo-related boost remaining the main support in the latter part of the projection period. Domestic demand continues to underpin activity.
Inflation has eased at the headline level, as CPI fell to 1.9% in July from 3.3% in April, the lowest reading since 2021 and close to the bottom of the tolerance band. Disinflation was driven by food, which is in year-on-year deflation on the back of an exceptional 2026 harvest and a September 2025 margin-cap base, alongside lower fuel prices as the Middle East shock faded. Core inflation remains at 4.5%, at the top of the tolerance band, and services price growth is still elevated; FY26 average CPI is cut to 3.1% from 3.9%, and FY27 to 4.2% from 4.5%, although a September base effect is expected to push headline back towards 4.0–4.5% through winter. With growth firm and real wages elevated, the NBS key rate is projected to stay at 5.75% through 2026 and 2027, with no cut before 2028, while parliamentary elections are scheduled for 25 October.
Derivative Strategies Amid Prolonged Policy Pause
We advise derivative traders to position for a prolonged pause from the National Bank of Serbia (NBS) by paying the fixed rate in Interest Rate Swaps (IRS). Despite the headline inflation dipping to 1.9% in July, core inflation remains stubbornly high at 4.5%, matching the upper limit of the central bank’s target band. With robust economic growth tracking at 3.5% for the first half of the year, there is no domestic pressure for policymakers to cut the key rate from 5.75% anytime soon.
FX and Yield Curve Opportunities Around Elections
In the FX forwards market, we recommend preparing for a temporary rise in Serbian Dinar (RSD) volatility as the October 25th parliamentary elections draw near. Although the central bank historically uses heavy market interventions to keep the dinar steady against the euro, political premium and winter inflation expectations could temporarily widen forward points. Hedging long-RSD exposures through short-dated forward contracts will protect portfolios against any sudden, election-driven liquidity squeezes.
We also see a profitable opportunity in betting on a steeper local yield curve using Belgrade Interbank Offered Rate (Belibor) swaps. While short-term money market rates will stay anchored near the 5.75% policy rate, longer-term yields are bound to rise as winter inflation mechanically climbs back toward 4.5%. This shift is highly likely because heavy infrastructure spending on the upcoming Belgrade Expo project continues to fuel strong domestic demand and keep fiscal spending high.
