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Serbian Central Bank Governor Soskic Promises `Continuity,' Fine Tuning
Serbia’s new central bank Governor Dejan Soskic promised “continuity” in the Balkan nation’s monetary policy, saying he would promote only “fine-tuning” to strengthen the economy.
Soskic, who was approved for the post by Parliament yesterday, is seeking to reassure investors and citizens that National Bank of Serbia policy makers will concentrate on keeping the recovery on track. Analysts have said he has little other choice as the bank struggles to calm the dinar’s recent volatility.
“One of the early steps will be monetary policy continuity, with fine-tuning of a system in which Serbia can improve its macroeconomic balance, primarily in domestic savings and investments,” Soskic said today in Belgrade.
Speaking on state television last night after Parliament confirmed his appointment, Soskic said exchange rate of the dinar was “not irrelevant” for the bank and it will be monitoring the currency’s effect on prices and financial stability.
“The central bank has very, very restricted room to maneuver, and the only possible difference could be in the frequency and volume of their market interventions,” said Zoran Petrovic, Deputy Chairman of Raiffeisenbank in Belgrade.
The currency, which has lost more than 11 percent since January, was trading at 106.3 dinars to the euro at 14:40 p.m. in Belgrade, little changed from yesterday.
Dinar Orientation
“We still see a risk that the gradual depreciation” of the dinar “will continue in the near term due to the lack of capital inflows, but a more FX-oriented central bank governor may of course slow down the weakening,” said Elisabeth Andreew, chief foreign-currency strategist at Nordea Markets, in a note from Copenhagen.
The central bank manages the dinar’s movements on the market as part of its inflation targeting policy, designed to bring inflation closer to European Union levels. It has spent more than 1.5 billion euros ($2 billion) so far this year on the interbank market to stem the national currency’s losses.
Sonja Miladinovski, a board member charge of treasury activities at Societe Generale Bank in Belgrade, said the main concern was how fast the weaker dinar worked itself into the inflation rate. She said that commercial banks will “continue to service their clients regardless of the dinar level.”
Hard Currency Demand
“Demand for hard currencies is not unusually high, the market liquidity thinned, and hard currency inflows from remittances or through foreign exchange offices are insufficient to cover short-term demand,” said Miladinovski, who is also president of Serbia’s ACI association of foreign exchange traders.
Alen Kovac, research analyst at Zagreb-based Erstebank, said that interest rate increases and market interventions cannot be ruled out.
“The market sentiment is still for the weaker dinar and the central bank could become even more concerned about the exchange rate,” Kovac said. “Fundamentals, however, do not point to any significant weakening of the dinar.”
To contact the reporter on this story: Gordana Filipovic in Belgrade at gfilipovic@bloomberg.net
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