Serbian Government to Press Central Bank on Rates, Dinkic Says

Serbia’s government will ask the central bank to lower interest rates and manage the dinar’s exchange rate to bolster economic growth and aid exporters, Finance Minister Mladjan Dinkic said.

The government will hold talks with the central bank later this month as it tries to pull the Balkan nation out of its second recession in three years, Dinkic told reporters in Belgrade today.

The Narodna Banka Srbije raised its one-week repurchase rate eight times in nine months between June and February by a total of 225 basis points, or 2.25 percentage points, to 11.75 percent, to bring Europe’s second-highest inflation rate back to its target band. The increases have helped boost the dinar 5.8 percent against the euro since July 27, when Prime Minister Ivica Dacic’s Cabinet took office.

“It’s impossible to develop the economy with such high interest rates,” Dinkic said. The government should ensure that the dinar rate “works for exporters” and see “how to lower interest rates through a cut in the central bank’s benchmark rate. Those are the two areas where the National Bank of Serbia can help.” Dinkic said.

The Cabinet will consider fiscal measures for growth and exports, which are targeted to grow 25 percent this year, Dinkic said.

Slowing Inflation

“Considering that inflation has been slowing, the central bank is the one to think about lowering its interest rate, which would lead to a drop in lending rates,” Dinkic said after meeting entrepreneurs to discuss state aid.

The central bank launched inflation targeting in 2006, relying on a managed float for the dinar to keep inflation under control. The bank needs to bring inflation down from 12.8 percent in January to 4 percent plus or minus 1.5 percentage points by the end of 2013.

Dinkic dismissed opposition calls for a fixed exchange-rate regime because “Serbia already runs a huge foreign trade deficit and a fixed rate would mean higher imports and thus an even wider trade deficit and enormous risk.”

The exchange rate has been “an export-boosting instrument in all fast-growing economies,” he said.

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