Serbia’s central bank may increase interest rates to quell volatility in the dinar, which weakened to a record low this week, Vice Governor Bojan Markovic said.
“Large interventions are meaningful only when faced with temporary shocks on the foreign-exchange market, while in case of permanent shocks, the interest-rate response is the main policy tool,” Markovic said by phone in Belgrade today. “But when temporary forex pressures are particularly pronounced, a moderate interest-rate hike can also be used as a measure in such a case.”
The dinar has weakened 11 percent against the euro this year, according to central bank figures. The bank has spent nearly 1.2 billion euros ($1.5 billion) since February to slow the decline of the currency and called an auction today to sell euros to banks, according to three traders who asked for anonymity in line with their bank policies.
Elections on May 6 were inconclusive, pushing the dinar to record lows on concern a delay in forming a new administration will halt progress on spending cuts and the renewal of the country’s $1.3 billion international bailout loan.
The dinar traded at 117.9905 per euro at 1:44 p.m. in Belgrade, according to data compiled by Bloomberg, up from an intraday low of 118.4667.
The Narodna Banka Srbije will meet on June 7 to discuss monetary policy after leaving the two-week repurchase rate unchanged for a fourth month on May 10 at 9.5 percent.
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