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Serbian Dinar to Weaken 10% This Year, Economics Institute Says

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March 6 (Bloomberg) -- Serbia’s dinar will weaken at least 10 percent this year as capital inflows dry, the Belgrade-based Economics Institute said.

The dinar will likely drop by “only” 10 percent this year to 116 per euro if Serbia attracts around 1.5 billion euros ($2 billion) in foreign direct investment or close to five percent of its economic output and lowers the goods and services trade gap to 16 percent of GDP from 16.5 percent in 2011, Stojan Stamenkovic, the institute’s chief macro economist, told a news conference.

The forecast assumes the central bank selling around “one billion euros” from its foreign exchange reserves to curb more excessive dinar weakening, Stamenkovic said in Belgrade.

Pressure mounted on the dinar as Serbia’s external debt servicing costs hit 39 percent of its export revenues this year, compared with 25 percent that would have been a “tolerance limit” for a country like Serbia, he said.

The dinar is the fifth-worst performer among 176 currencies tracked by Bloomberg, with a 4.85 percent depreciation since February. It traded at 110.6777 as of 3:54 p.m. in Belgrade.

The dinar weakness was triggered by the government’s decision to freeze its $1.3 billion precautionary loan program with the International Monetary Fund as Prime Minister Mirko Cvetkovic’s cabinet no longer commands the majority in parliament needed to revise the 2012 budget and adjust the spending plan to lower growth forecasts and targets agreed with the lender.

To contact the reporter on this story: Gordana Filipovic in Belgrade at gfilipovic@bloomberg.net

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net

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