Bloomberg News

Serb Central Bank Will Allow Only ‘Simple’ Hedging Instruments

November 30, 2011

Nov. 30 (Bloomberg) -- Serbia’s central bank will restrict hedging to “simple” instruments as it tries to reduce credit risk stemming from exposure to foreign currencies and interest rate fluctuations.

The Belgrade-based National Bank of Serbia will “foster development of transparent and simple hedging instruments, such as foreign-exchange forwards and swaps, as well as interest rate swaps,” Vice-Governor Bojan Markovic told a conference in Belgrade today.

At the same time, it plans to discourage use of “complex financial derivatives” including credit-default swaps, which have had a negative impact on financial stability globally over the past few years.

Under the newly adopted Foreign Exchange Law, Serbia will allow the use of some derivatives, but only if they are used to “open a position, not to close it,” he said.

Serbia’s dinar, trading at 103.9734 to the euro at 3:25 p.m. in Belgrade today, is among world’s 15 top performing currencies, with year-to-date gains of 2.22 percent, according to Bloomberg data.

Markovic said some Serbian banking indicators point to some positive change, including 9 percent credit growth in October this year compared with the same period a year ago, an increase in the local currency share in total bank credit portfolio to 30 percent, as well as longer maturities of the debt held by banks, companies and the government.

To keep investors confident about Serbia the government should stick with a cautious fiscal policy and avoid any pre- election spending spree even as the nation continues to feel the pinch of Europe’s debt crisis.

Serbia agreed with the International Monetary Fund to cut the fiscal gap to 4.25 percent of GDP in 2012 from 4.5 percent this year. It also needs to stick with a limit for public debt to GDP of 45 percent.

--Editors: Douglas Lytle, Zoe Schneeweiss

To contact the reporter on this story: Gordana Filipovic in Belgrade at gfilipovic@bloomberg.net

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net


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