Serb central bank urged to keep high currency reserves

BELGRADE (Reuters) – Serbia’s Finance Ministry has urged the country’s central bank not to cut mandatory reserves on hard currency deposits later this year, fearing the measure would fuel already high inflation. The central bank last week pledged to cut mandatory reserves on such deposits to 40 percent from 47 percent by the end of the year, after the government raised the size of insured deposits to 3,000 euros from 60 euros. «The measure is good but the timing is wrong. The Finance Ministry opposes the timing and suggests the (central bank) governor postpone it for the next year in order to preserve macroeconomic stability,» the Finance Ministry said in a statement to Reuters. Deposit insurance was meant to encourage Serbs to put their savings in banks, rather than keep them under their mattresses. Under the central bank’s plan, the reserve requirement will be cut to 45 percent in August and to 43 percent in September. «Such a decision would mean new inflationary pressures. And we must first lower inflationary pressures and only then go with a measure like this,» the ministry said. Earlier this month the government gave up its original plan for 9.1 percent inflation for the whole of 2005 and is now targeting a figure close to 2004’s 13.7 percent. The International Monetary Fund also opposes the timing of the cut, due to create some 130 million euros worth of extra liquidity.

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