Serb Central Bank Governor Sees More Dinar Weakness by End 2013

Serbia’s dinar will weaken this month as the government and companies make year-end payments, central bank Governor Jorgovanka Tabakovic said.

The dinar has depreciated 1 percent against the euro since Nov. 2, the biggest three-day slide in six months. It traded at 115.2408 per euro at 1:18 p.m. in Belgrade, its weakest level since Sept. 17, according to data compiled by Bloomberg.

“It is important for the central bank not to allow inflationary pressures and pressures on dinar,” Tabakovic said today in an interview with the B92 TV broadcaster in Belgrade. “I don’t expect massive pressures or some surprising fluctuations. I just expect some dinar weakening.”

The dinar has been under pressure for two days because of “significant” import payments by Naftna Industrija Srbije AD and will continue to lose ground throughout December as companies pay for public procurements and the government pays its liabilities.

The yield on Serbia’s 10-year Eurobond fell 5 basis points, or 0.05 percentage point, to 6.516 percent by 11:24 a.m. in Belgrade, data compiled by Bloomberg show.

The National Bank of Serbia has sold 425 million euros ($577.5 million) and bought 435 million euros this year to keep the dinar stable. It manages the currency as part of its inflation-targeting policy introduced in August 2006.

It last acted on Nov. 29, when it bought 10 million euros to slow dinar gains as there’s “no reason for the dinar to excessively appreciate,” she said.

Eurobond Sales

The dinar gained strength in 2013 as Serbia sold Eurobonds and offered investors domestic debt at yields of around 10 percent. The central bank has kept its benchmark interest rate above 10 percent to fight inflation, which fell to a record-low 2.2 percent in October. The bank targets inflation at 4 percent, plus or minus 1.5 percentage points.

Tabakovic has held the central bank’s top post since Aug. 2012, when her Serbian Progressive Party formed a government with Prime Minister Ivica Dacic’s Socialists.

She was a member of the Serbian Radical Party between 1991 and 2008, and a partner with late strongman Slobodan Milosevic in the 1990s, a decade marked by wars, economic devastation, bouts of hyperinflation and currency devaluation.

Each percentage point of dinar weakening against the euro expands Serbia’s public debt by as much as 25 billion dinars ($295.2 million) or 0.5 percent of gross domestic product, according to the government’s three-year fiscal strategy through 2016.

Public debt will rise to 67 percent of GDP in 2014 from 64 percent this year, according to the same document. The International Monetary Fund advised Serbia to stabilize the debt in 2014.

Junk-rated Serbia relies on external borrowing to repay debts and finance its budget gap, which will rise to 7.1 percent of GDP next year from 6.5 percent in 2013.

Before it's here, it's on the Bloomberg Terminal.