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Central bank sells EUR 20mn to support weakening dinar

February 16, 2014

Serbia's central bank (NBS) sold EUR 20mn on the domestic currency market on February 5, to support the local currency and ease its daily volatility, the bank said in a statement.

The local dinar currency started weakening in early 2014 due to the seasonally higher FX demand by domestic energy importers, and anxiety of international financial markets due to the US Fed's decision to taper its quantitative easing programme, the NBS said in a statement at end-January.

The NBS has set an indicative dinar/euro exchange rate of 116.04 RSD for one euro on February 6, up from 115.98 the day before and 114.64 at end-December 2013.

The early parliamentary elections which should be held on March 16 together with the municipal elections in Belgrade will likely also put some downward pressure on the local currency in Q1. Nonetheless, most analysts expect the new government to be formed quickly after the elections. In addition, the central bank will likely halt key repo rate cuts during the pre-election period in order to prevent the dinar from weakening further.

According to an analysis of Raiffeisen Bank, some appreciation of the dinar is possible in the second quarter of the year underpinned by progress in structural reforms and stronger FDI inflows thanks to the launch in January of the EU accession talks.

In 2013, total NBS interventions stood at EUR 1.1bn, down from EUR 1.35bn a year ago. The bank's intervention policy was active in both ways - appreciation and depreciation. Since the start of 2013, it bought EUR 615mn and sold EUR 435mn on the domestic interbank market.

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Source: IntelliNews - Weekly Reports

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