Serbian Dinar Strengthens Further on C-bank Changes in Reserves Requirements - Dealers

“The measures they [the central bank] had announced resulted in stabilisation and drastic strengthening of the dinar,” a local dealer told SeeNews.

“On Friday, just when this information was announced, the exchange rate was 83.00 dinars per euro. In an hour the exchange rate rose to 82.20, from where it opened today and now [1240 GMT] it is 81.10 dinars per euro.”

Serbia’s central bank, NBS, on Friday scrapped its mandatory reserves requirement for banks' fresh borrowing in foreign currency, retroactive from October 1, aiming to boost the liquidity of the country's banking system amid the global finansial crisis.

NBS also increased to 20% from 10% the share of mandatory reserves on foreign currency deposits, which banks have to maintain in Serbian dinars. Banks in Serbia had to maintain in euro 90% of their mandatory reserves on foreign currency deposits and the remaining 10% in dinars.

“The central bank's measures definitely resulted in an excessive amount of euro on the market and increased demand for dinars,” another local dealer told SeeNews, quoting a rate of 81.25 dinars per euro around 1300 GMT on Monday, up from 82.30 dinars per euro at Friday’s close.

“The traded volumes are not big, but the central bank measures have satisfied the demand for euro, which is now minimal on the market,” the first dealer said.

“Liquidity is completely secured and no one has fresh problems. The banks are absolutely liquid and the current strengthening of the dinar was expected after such central bank measures.”

He added he expects the exchange rate to stabilise at around 81.00 dinars per euro. “It is an absolutely healthy level for the euro-dinar rate. It waekened to 83.00 from 77.00, which is too much. So, a band of 80.00 to 81.00 is realistic after the recent turbulences.”

NBS sold 80 million euro ($107 million) in the interbank foreign exchange market last week to prevent a sharp drop of the dinar.

The dinar reached its lowest level of 83.86 per euro on May 12, a day after Serbia’s snap elections failed to give President Boris Tadic's pro-Western coalition enough seats to form a cabinet on its own. After prolonged negotiations, a pro-European coalition cabinet finally took office at the beginning of July.

The dinar started firming in June, when many banks increased their capital, market analysts have said, but the recent deepening of the global financial crisis has dented confidence in the dinar, making investors seek a safe haven in foreign currencies.

($=0.7453 euro)