Bloomberg News

Serbian Central Bank’s Debut Direct Repo Attracts Seven Banks

July 18, 2012

Serbia’s central bank sold 6 billion dinars ($62.6 million) in its inaugural direct repurchase auction as it offers cash to banks to ease a liquidity strain sparked by policy-tightening measures introduced in June.

Seven banks participated in today’s auction, the Belgrade- based Narodna Banka Srbije said in a statement on its website. It was the first time the NBS offered the one-week repurchase transactions since it began targeting inflation six years ago.

The amount matched overnight liquidity credits on July 16 of 6 billion dinars. Serbian banks have increasingly turned to the overnight facility since June 22, two weeks after the central bank raised its benchmark interest rate by a half-point to 10 percent and tightened reserve requirement rules to drain liquidity from the market because of the government’s fiscal expansion and depreciation pressures on the dinar.

“The lowest accepted interest rate was 10.56 percent” while the average cost of its cash was 10.81 percent, Vice- governor Bojan Markovic said today in a telephone interview. The bank fully met liquidity demand in “a routinely conducted auction,” he said.

The central bank raised its main rate again on July 12 to 10.25 percent. That rate served as the “marginal” rate in today’s auction, the bank said.

The National Bank of Serbia had used reverse repo operations to drain excess liquidity since it began targeting inflation in August 2006. High interest rates attracted both domestic and foreign investors to invest with the central bank.

The one-week direct repo operations will be conducted at a multiple price, offering banks a limited amount of cash with the benchmark two-week repurchase rate serving as the minimum price. The central bank will take dinar-denominated Treasury bills and bonds as collateral.

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

To contact the editor responsible for this story: James M. Gomez at

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