Bloomberg News

Serbian Dinar Weakens Past 110 Per Euro for First Time Ever

February 27, 2012

(Updates with market, central bank in second, third paragraphs.)

Feb. 24 (Bloomberg) -- Serbia’s dinar weakened past 110 per euro for the first time, dropping 0.5 percent on the day as investors are concerned the government will ignore public- finance risks ahead of spring general elections.

The dinar dropped to 110.2645 to the euro at 11:02 a.m. in Belgrade, according to data compiled by Bloomberg. The decline was marked by “heft” interbank trades, said analysts at Zagreb-based Hypo Alpe-Adria-Bank d.d. including Hrvoje Stojic, in a note to clients.

A dispute with the International Monetary Fund over government finances led to a freeze in Serbia’s precautionary loan program and raised the specter of past bouts of hyper- inflation during the 1990s, a decade of Balkan wars and international sanctions. Investors are also concerned the government will step up spending before elections to spark growth and employment.

“The problem is that the level of 110 is psychological,” said Aleksandar Jaredic, head of the Treasury division at the Belgrade-based unit of Oesterreichische Volksbank AG.

The central bank, following its inflation targeting rules, acts to smooth excessive daily oscillations in the dinar exchange rate, without stopping the trend.

Newspaper Politika cited central bank Governor Dejan Soskic today as saying that the Belgrade-based Narodna Banka Srbije would not want to “intervene” just to help “speculators” close their dinar positions cheaply.

Stalled Program

The dinar has been declining since Feb. 9 when Prime Minister Mirko Cvetkovic agreed with the International Monetary Fund to freeze a $1.3 billion precautionary loan program until a new government takes office after parliamentary elections due by early May.

The lender postponed the approval of the first policy review under the program when it discovered that Serbia’s 2012 budget exceeds agreed public borrowing ceilings, after the government already slipped on public debt and budget deficit targets in 2011.

The dinar is now 6 percent weaker than a year ago, according to central bank data, and 3 percent cheaper than at the start of 2012.

Investors see the absence of an IMF program as critical. Erste Group Bank AG said this week risks point to dinar levels past 110 to the euro.

Benoit Anne, emerging-markets strategist at Societe Generale SA in London, said today that “there’s too much uncertainty” at the moment, after his bank wrote on Feb. 23 that “we probably need to wait for further visibility of those risks before we can turn bullish on RSD again.”

--Editors: James M. Gomez, Douglas Lytle

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

To contact the editor responsible for this story: Alan Crosby at acrosby1@bloomberg.net


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