Dinar Grows Stronger With Confidence of Important Investors
Increased pressure towards the strengthening of the dinar in the local FX market and the domestic currency appreciating over the past several days can be ascribed almost entirely to the rising confidence of foreign investors, who have been increasingly investing in long-term dinar bonds of the Republic of Serbia.
Over the past several days, non-residents sold significant amounts of FX and bought dinars in order to invest in the government bonds of Serbia which has fully transformed its economic indicators, turning them to a positive direction. This way, investors have shown they are confident that our country’s further development will rest on sustainable economic grounds.
The official exchange rate of the dinar to the euro as at today is 117.9097, which is the highest value of our currency against the euro in four and a half years (since 1 September 2014). Since the beginning of the year, the dinar has gained 0.2% on the euro.
With the aim of maintaining relative stability in the domestic FX market, which is very important for the Serbian economy, i.e. in order to ease excessive daily fluctuations of the exchange rate, the NBS has stepped-up its interventions over the past several days by purchasing FX. Since the start of the year and until and inclusive of yesterday (3 June), the NBS net bought EUR 250 mn (bought EUR 380 mn and sold EUR 130 mn), and continued to intervene by purchasing FX today as well.
After the usual seasonal depreciation pressures in January, when the NBS intervened on the purchase side, the remainder of 2019 saw the continuation of FX purchase interventions and mitigation of excessive dinar appreciation due to constant appreciation pressures present in the past two years. Pressures to strengthen the dinar in this period are structural, resulting from better economic indicators at home, notably increased long-term, foreign direct, and portfolio investments, as well as export growth and rising FX inflow from tourism.
In this way, the NBS provides a business environment characterised by the certainty of operations for the domestic companies, contributes to the preservation of competitiveness of domestic export as an important growth driver, boosting FX reserves and strengthening the resilience to potential shocks from the international environment. Since April 2017, the NBS contributed to an increase in FX reserves by more than EUR 2.9 bn through interventions on the FX market alone.
The investors’ demand (mainly non-residents’) at today’s auction of seven-year dinar securities exceeded the planned sales volume almost four times. Bonds worth RSD 26.7 bn were sold at the price (interest rate) of 4.37%, which is a reduction in the price of government financing by as much as 13 bp compared to the previous auction of these bonds (early May), that is, by as much as 20 bp compared to the price at which the bond was initially issued early this year.