NBS: Ratio between supply and demand responsible for dinar sliding

Belgrade 25. May 2010. (Serbia Today) - President of the National bank of Serbia Council Dejan Šoškić says that a reason for the dinar sliding to over 100 for one euro is the ratio between supply and demand. The candidate for the next central bank governor added that Serbia has no competitive export-oriented economy and is not attractive enough for direct foreign investments. Šoškić believes that there is a possibility that the relationship between the dinar and the euro in the domestic market is partly caused by the expectation that the crisis epicenter in the eurozone will have negative effects on its immediate surroundings. In an interview published by the Belgrade-based daily Vecernje Novosti, Šoškić assessed that a more "aggressive" defense of the exchange rate involving intervention from foreign currency reserves would give short-term results, and would also be expensive for the country and lead to additional debt. "A more aggressive defense of the exchange rate would possibly make sense if it would remove the short-term and significant imbalance in the foreign exchange market, caused by speculative or psychological reasons. I believe that, so far, the movements on the foreign currency market have been neither unexpected nor alarming.” Šoškić pointed out that banks should not accrue further foreign debt, adding that Serbia's indebtedness is growing rapidly and that the public debt level should not increase any more. He also told the newspaper that he agreed with Prime Minister Mirko Cvetković who said recently the exchange rate was not the problem, but rather the euroisation and the “hidden two-currency system”.  Šoškić expects the current talks with IMF officials concerning the ongoing stand-by arrangement worth a total of EUR 2.9bn to be successful, and says that if Serbia were to increase public sector salaries and pensions, the country would “likely lack money for planned public investments in infrastructure”.