The dinar fell to an all-time low, breaking through 109.00 to the euro for the first time, led weaker by investors buying foreign currency and closing dinar positions.
Serbia’s dinar depreciated as much as 1 percent to 109.7532 before the central bank said it sold a total of 68.5 million euros ($91.1 million) in the market to support the dinar, fixing its mid-rate at 109.1794 to the euro today to be effective tomorrow.
The dinar slumped for a sixth day as the Balkan country’s energy imports soared amid heavy snowfall and freezing temperatures. Serbia’s central bank held its benchmark interest rate at 9.5 percent as the currency plunged, growth for the year was revised downward and talks with the International Monetary Fund stalled over the first review under a $1.3 billion precautionary loan program.
“When you have such dinar declines in two, three days only and the central bank supporting it with a mere 10 million euros, the only thing you can do is close your position,” Ratko Guduric, the deputy head at Belgrade-based Vojvodjanska Banka, part of the National Bank of Greece SA group, said in a phone interview.
After the rate decision, vice-governor Bojan Markovic said the Belgrade-based National Bank of Serbia is prepared to “do everything necessary” to keep the market stable. The lender sold 10 million euros yesterday “to smooth excessive daily swings in the exchange rate,” it said on its website.
“The genie is out of the bottle,” said Zoran Petrovic, deputy chairman of the managing board of Raiffeisen Bank (RBI) in Belgrade, commenting on the dinar’s weakness. “Even after the intervention, banks quote the dinar between 108.90 and 109.00 to the euro. But at least the central bank has seen how much money the market really needs.”
The dinar’s decline prompted trade unions concern and calls on the government and the central bank to stop further weakening, citing concern that the “rising value of the euro additionally cuts the value of wages and pensions” and will ultimately “inevitably lead to an increase in prices and monthly loan installments” affecting the majority of the population, the Alliance of Independent Trade Unions said in a statement today.
Prime Minister Mirko Cvetkovic said in a statement today he agreed with the IMF to keep the loan program frozen and pledged to observe fiscal deficit and public debt targets agreed under the program anyway. The lender’s mission will return to Belgrade around “mid-year,” he said.
The loan program was approved last September to help shield Serbia from Europe’s sovereign debt crisis. An IMF mission arrived in Belgrade last week to discuss ways to curb plans for selling public debt and sovereign guarantees, which the lender sees as deviating from agreed targets for 2012 by at least 300 million euros. The IMF postponed on Jan. 20 approval of the first review under the program.
“The National Bank of Serbia will do everything necessary to ensure the stability of the forex market in Serbia,” vice- governor Bojan Markovic said in a telephone interview today. “Foreign reserves of 12.1 billion euros provide more than a sufficient buffer for that.”
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