Serbia’s central bank intervenes to put the brakes on the dinar

BELGRADE (Reuters) – Serbia’s central bank made its second-biggest intervention this year to curb the dinar yesterday and said it wanted to stabilize it at 79.00 to the euro. The central bank bought 26.65 million euros to curb gains in the dinar amid ample hard currency liquidity, resulting from ongoing privatizations and banks converting their capital into dinars. «What we did today was to send a signal to the market that it’s time to put brakes on (the dinar),» central bank governor Radovan Jelasic told Reuters. The dinar closed at 79.0 to the euro, up from 79.0100 on Monday in a fixing session where banks looked to buy euros at 78.50 dinars, the lowest level since mid-December 2004. Dealers quoted the dinar at 78.67/78.85 to the euro in their interbank forex market trade. «We certainly believe that the dinar should stabilize at this level for some time,» Jelasic said. «But this does not mean that at some point the dinar would not firm.» The central bank intervened three times last week to keep the lid on the dinar at 79.0 to the euro. The dinar was changing hands at 85.5 to the euro at the start of 2006. According to its new policy of greater dinar exchange rate flexibility and a «leaning against the wind» role, the central bank has made clear it would not intervene against a cumulative pressure built over a longer period of time. «But the appreciation pressures and the length of time now still do not match the situation when we intervened and bought 80 million euros,» Jelasic added. In its August 17 intervention, the central bank bought 80 million euros to prevent the dinar from jumping to 80.00/euro, and temporarily halted its rise driven by foreign investment and privatization revenues seen at record high $4.0 billion in 2006. The upward pressure on the dinar persisted a week after the central bank announced monetary policy relaxation, the first in more than a year, designed to ease the pressure, following reports on Serbia’s improved inflation outlook for 2006.