Serbia’s central bank said it’s considering changes to reserve requirements to release funds to keep inflation and the exchange rate stable.
The changes would also be aimed at lowering borrowing costs and encourage banks to seek longer-term sources of financing, the Belgrade-based Narodna Banka Srbije said in an e-mail today.
Banks in Serbia set aside 30 percent on short-maturity foreign-currency assets and 25 percent on longer maturities exceeding two years, paying 85 percent and 90 percent respectively in euros and the remainder in dinars.
“This decision will create demand for dinars and somewhat ease pressure on the exchange rate,” Jasna Atanasijevic, chief economist at the Belgrade-based Hypo Alpe-Adria-Bank AD, said by phone.
The central bank has been under pressure to lower reserve requirements as businesses face slowing demand for their goods at home due to declining purchasing power and abroad as Europe’s sovereign debt crisis weighs on demand for Serbian exports. This has hurt their ability to repay loans, resulting in expanding bad-debt portfolios for banks.
The central bank has already exempted dinar assets with maturities beyond two years from any mandatory reserve requirements, while banks must set aside 5 percent for shorter maturities.
Changes in the reserve requirements need to be approved by the management of the National Bank of Serbia, which next holds a policy meeting on April 12. Rate setters will also discuss any necessary policy response to a slowing economy and exchange rate volatility.
Serbia will hold parliamentary elections on May 6 with the dinar at its weakest levels since the fall of former Serbian strongman Slobodan Milosevic in 2000, unemployment at 24.4 percent and economic growth of no more than 0.5 percent, according to central bank and International Monetary Fund forecasts.