Interest Rates to Keep Growing Due to Inflation – March to Be Turning Point

In an attempt to suppress the inflation in the eurozone and bring it back to 2%, the European Central Bank has raised key interest rates again. This automatically leads to loans being expensive in Serbia too, because, with most loans, the interest rate is changeable and depends, to a large extent, on the three- or six-month Euribor.

The euro interest rate jumps periodically, but the Euribor which follows it grows daily, as do the interest rates, mostly for those who borrowed recently.

The secretary of the Association of Serbian Banks, Vladimir Vasic, says that his interest rate on a month-old loan has also jumped EUR 25 compared to the previous period.

– In most cases, it’s those who took out a loan of EUR 50,000. It also depends on when you took out a loan and how much you’ve repaid – Vasic explains.

For example, the interest rate on a loan of EUR 50,000 taken out in January for 30 years was 2.69%, and an installment was EUR 202. In August, it was already over 3%, and the installment grew to EUR 232, and in September, it grew to EUR 246. Those who have repaid a major part of the debt will be less affected by the change of Euribor.

– Depending on whether you’ve exceeded the hundredth month of the repayment, when the interest rate is reduced, and the repayment of the principal amount is increased. Each percentage point is somewhere between 25 and 30 euros. That means that, if it is increased to 3%, a new increase in installments of 25 to 30 euros can be expected – explains Ismail Musabegovic, a professor at the Belgrade Banking Academy.

“March will be the turning point”

The National Bank of Serbia is also increasing the dinar interest rate in response to the inflation. However, as the loans in local currency are, as a rule, smaller and have a shorter repayment period, the increase of Belibor does not affect those who have dinar-denominated loans as much for the time being.

Unfortunately, experts estimate that this is not the end when it comes to the increase of Euribor.

– It will certainly continue until the end of the year, most probably by 0.50%, which means that the key interest rate of the European Bank will be at least 2.5%, maybe even 3%. March will be the turning point, when the results of the increase of the interest rates can be expected to be seen – Musabegovic says.

He believes that the situation from October 2008, when Euribor reached 5.4%, and the annual interest rate on housing loans in Serbia was 8%, will not repeat.

However, he says that, in order for the number of loans where the repayment is late not to increase, banks could reduce the margins and costs.

Udruženje banaka Srbije

BBA-Beogradska Bankarska Akademija

Narodna banka Srbije Beograd

European Central Bank

Vladimir Vasić

Ismail Musabegović

inflation

eurozone

key interest rates

loan price increase

Euribor

three month Euribor

six month Euribor

Belibor