Bloomberg News

Dinar Weakens to All-Time Low on Liquidity, Policy Concern

July 25, 2012

Serbia’s dinar depreciated to the weakest ever against the euro on “massive” liquidity and concern about a lack of policy direction from the new government, due to be sworn in tomorrow.

The dinar slumped 0.9 percent to 118.9500 against the euro at 5:17 p.m. in Belgrade, making it Europe’s worst-performing currency with a 9.9 percent drop this year.

The new government of Prime Minister-Designate Ivica Dacic is scheduled to take the oath of office at 3 p.m. on July 26. The parties forming the incoming government want to replace central bank governor Dejan Soskic for failing to prevent lender Agrobanka AD’s collapse and said the new cabinet must take urgent steps to avoid bankruptcy for the country. The outgoing cabinet has said Serbia’s finances are stable.

“The central bank is not intervening, there’s massive dinar liquidity and there’s concern about future government fiscal policies and steps,” said Ljiljana Grubic, chief analyst at the Belgrade-based Raiffeisen Banka AD.

The Belgrade-based Narodna Banka Srbije sold 10 million euros ($12.12 million) for the second time this week to “smooth the dinar’s intraday swings,” it said in a statement posted on its website. Earlier in the day, the central bank held its weekly repo auction, selling 2 billion dinars ($20.38 million) of liquidity to four banks at an average rate of 10.64 percent.

Serbia’s central bank has spent at least 1.3 billion euros this year to slow dinar depreciation, triggered after the International Monetary Fund suspended a $1.3 billion precautionary loan program for Serbia in February on evidence the country was already missing agreed-upon fiscal targets.

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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