Sept. 28 (Bloomberg) -- Serbia’s dinar is likely to weaken as much as 1.5 percent by the end of the year and remain stable throughout 2012, supported by investments, said Zoran Petrovic, deputy chairman of Raiffeisenbank Serbia.
With inflows of portfolio investments worth almost 800 million euros ($1.1 billion) and foreign direct investment in the first seven months of the year, “it is our assessment we will have a stable exchange rate at the end of the year,” Petrovic said in an interview today.
Raiffeisenbank Serbia forecasts a weakening of the dinar to 103 against the euro. The dinar was trading at 101.47 at 3:30 p.m. in Belgrade today.
“Traditionally the last quarter in the year has not been good for the dinar,” Petrovic said. “Also, if Europe does not resolve the debt crisis it could cause a bit more volatility in the short term” while the dinar should remain stable throughout 2012. Measured by the purchasing power parity, the dinar “seems to be around its equilibrium level.”
Raiffeisenbank Serbia forecasts additional cuts in borrowing costs, with the two-week repurchase rate seen reaching 8 percent at the end of 2012, compared with 11.25 percent at present.
“I guess there will be some additional relaxation in the fourth quarter this year,” Petrovic said.
The Belgrade-based National Bank of Serbia last cut its policy rate on Sept. 9 by 50 basis points, or 0.5 percentage points, to 11.25 percent, as economic activity cooled while inflation appears to be slowing rapidly toward single digits. Inflation reached 10.4 percent in August, slowing from 12.1 percent in July.
The Narodna Banka Srbije has room to consider a “steeper cut” in borrowing costs as inflation is no longer the main concern, the head of the Fiscal Council, Pavle Petrovic, said today at a banking conference in Belgrade.
--Editors: Douglas Lytle, Nathaniel Espino
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