Bloomberg News

Serbia Won’t Sell Any More Euro-Indexed Debt, Djokovic Says

June 14, 2011

(Updates with analyst comment, dinar price, starting from third paragraph.)

June 14 (Bloomberg) -- Serbia’s government will no longer index its dinar-denominated debt to the euro and will concentrate on trying to help the central bank boost efficiency of monetary policy, Deputy Finance Minister Vuk Djokovic said.

“There will be no more indexation to the euro,” Djokovic told Bloomberg News in a phone interview today. “It will be either dinars or euros. We do not like instruments which stand in the way of the monetary policy of the National Bank of Serbia.”

The country’s Debt Management Agency issued its July borrowing calendar yesterday, offering no rollover for 21 billion dinars ($302.88 million) worth of six-month Treasury bills it indexed to the euro and sold on Dec. 29. The Serbian dinar has weakened since yesterday as investors anticipate the debt’s maturity on July 1.

Serbia’s new debt sale plan includes a single 150 million- euro offering in 18-month euro-denominated debt, which the government aims to sell on July 4, offering “some refinancing possibility” and “good relations with investors,” Djokovic said.

The Dec. 29 auction, which was sold in dinars with a 5.25 percent yield, marked a shift in investor sentiment, attracting bond buyers and triggering the firming of the dinar, turning the currency this year into the world’s second best performer among 178 currencies tracked by Bloomberg.

Fighting Inflation

The Belgrade-based Narodna Banka Srbije is fighting double- digit inflation with a double-digit benchmark interest rate. It lowered its two-week repurchase rate by half a percentage point to 12 percent on June 9 amid signs inflation peaked in April and began slowing in May. The central bank is trying to increase the volume of dinar transactions in the economy where close to 70 percent of all banking transactions are conducted in euros.

“We feel the dinar is approaching value and we will monitor the price action in euro-dinar closely,” said Benoit Anne, head of global emerging-markets strategy at Societe Generale SA, France’s second-largest bank, in a note to clients today. The French bank in May took profits on its short euro- dinar position and said it would be looking for new levels to “go long dinar again.”

Prime Minister Mirko Cvetkovic said today he isn’t concerned about the moves in the dinar and said the best exchange rate is one “set by the market.” Speaking to reporters after meeting Hungarian Prime Minister Viktor Orban, Cvetkovic declined to comment on the maturing euro-indexed debt issue.

Monitoring Market

The central bank said it is monitoring the market and would take part in the foreign exchange market” to ensure its smooth functioning, while seeing no reason for its role in the market as trading volumes stood at 180 million euros yesterday - - the highest daily volume this year so far, according to central bank data.

Serbia’s 18-month Treasury bill issue of 10 billion dinars was undersold today, with investors offering to buy 7.56 billion dinars and the government accepting to sell 6.48 billion dinars. The average yield dropped to 12.69 percent from 12.91 percent on May 24.

Serbia’s public debt rose to 43.5 percent of GDP at the end of the first quarter, expanding by 1.3 percentage points of GDP since December, the central bank said on its website today. The debt has grown as the government stepped up domestic borrowing. The government has a self-imposed cap on debt levels at 45 percent of GDP and if the limit is breached, the government has to present debt servicing plan to parliament.

--Editors: Douglas Lytle, Andrea Dudik

To contact the reporter on this story: Gordana Filipovic in Belgrade at

To contact the editor responsible for this story: Douglas Lytle at

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