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Serbian Central Bank Bought 5 Million Euros to Slow Dinar Gains

Serbia’s central bank bought euros for the second time this year today to slow gains in the dinar.

The Belgrade-based Narodna Banka Srbije purchased 5 million euros ($6.67 million) from commercial banks to “smooth the dinar’s intraday swings,” the bank said on its website without disclosing any further details.

Three currency traders in Belgrade, who asked to remain unidentified, in line with the policies of their banks, said the central bank was buying euros at levels around 111.30 dinars after the unit strengthened 0.44 percent to 110.6990. The dinar traded at 111.3550 by 5:37 p.m. in Belgrade, according to data compiled by Bloomberg.

The currency has advanced because of tight monetary policy, with the central bank raising its benchmark interest rate eight times since June by a total of 225 basis points, or 2.25 percentage points, to 11.75 percent, to bring inflation back to the target of 4 percent, plus or minus 1.5 percentage points by the end of 2013. Inflation was 12.2 percent in December.

The dinar and Romanian leu have been among top picks for SocGen analysts in London, including Benoit Anne. The dinar “has ample room to appreciate, especially with a big credibility effort on the policy front,” they said in a Feb. 6 note to investors.

The central bank’s buying is not “part of a more aggressive move to weaken the currency, but just to let the market know that the NBS is there and it is not a one way bet,” Timothy Ash, chief emerging-markets economist with Standard Bank Plc in London, wrote to clients today. “We have seen a number of small interventions” recently and “I sense the bank is eager to hold the currency in the 110-115 range.” The central bank last bought 5 million euros on Jan. 24 to curb the currency’s appreciation.

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