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Nov 27, 2007 17:32 EEST
(adds details, dealer comments)</p>BELGRADE
November 27 (SeeNews) - Serbia's central bank, NBS, said on Tuesday it would start selling up to 3.0 million euro ($4.5 million) per day on the interbank foreign exchange market, which it buys from local exchange shops, but added these sales would not be an intervention in support of the weakening dinar.
The central bank said in a statement that there was no need for it to intervene on the country's foreign exchange market, because there were no significant imbalances between currency demand and supply and where they existed they were a result of market speculation.
The planned sales of up to 3.0 million euro ($4.5 million) per day to the local interbank market were not intended to influence the exchange rate of the dinar, the central bank said.
"NBS reminds that in line with the new monetary policy framework, the dinar exchange rate towards the euro is formed dominantly under the influence of market factors. Based on the interbank currency trade and since the middle of 2007 the central bank has significantly decreased its participation in the total turnover of the interbank market, which now totals less than one percent of the whole turnover," it said.
Under its monetary policy programme for 2007, the Serbian central bank should intervene on the market in three cases: to smooth daily oscillations in the exchange rate, to ensure financial and price stability and maintain foreign exchange reserves at an adequate level.
"Having in mind that in the last three months the average daily buyout from authorised exchange offices has been around 3.0 million euro, the central bank will in the future sell on the interabank FX market up to 3.0 million euro, bought on the basis of exchange operations," the NBS said.
The liquidity on the market is much higher, the central bank now is selling around one million euro per day and it is yet to be seen what the impact of the planned trebling of those sales will be, a bank dealer told SeeNews.
The dinar has weakened against the euro throughout November. It traded at around 83 dinars per euro intraday on Tuesday on the interbank market, weaker than its average exchange rate of 77.5835 dinars per euro on November 1.
The recent depreciation of the Serbian dinar will not threaten the projected core inflation rate for 2007, central bank governor Radovan Jelasic said on Monday.
NBS expects the year-on-year core inflation rate to be between 4.0% and 4.5% by the end of the year. Next year inflation is expected to be between 3.0% and 6.0%. Core inflation, which covers prices that are not administered by the government, was 3.9% year-on-year in October, up from 3.3% in September.
($= 0.6713 euro)
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