Vice-governor says Serbian currency is "undervalued"

Serbian central bank (NBS) Vice-Governor Diana Dragutinović has said that the Serbian national currency, the dinar, was "probabyl undervalued at this point".

Izvor: Beta

Friday, 05.10.2012.

15:55

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BELGRADE Serbian central bank (NBS) Vice-Governor Diana Dragutinovic has said that the Serbian national currency, the dinar, was "probabyl undervalued at this point". She in this way argued against a statement made by U.S. Nobel Prize winner Paul Krugman, who recently visited Belgrade: Vice-governor says Serbian currency is "undervalued" "I don't know based on which calculations he concluded that the dinar was overvalued, considering that, had he taken a look at the NBS inflation report, he would have seen quite the opposite - that the exchange rate is at this point probably undervalued." Dragutinovic specified that the NBS quarterly report on inflation contained "a graph that showed current exchange rate deviations from an equilibrium path". However, the vice-governor and former cabinet minister stated that she "completely agreed" with Krugman's assessment that a fixed dinar exchange rate would not be good for the Serbian economy: "It is very difficult to have a fixed exchange rate in a country that has a very long-term, high payment balance deficit, which means it requires high amounts of capital inflow." Economist Jurij Bajec, who served as adviser to former PM Mirko Cvetkovic, also commented on Krugman's assessments heard in Belgrade to concur that a flexible exchange rate was "a less bad solution that a fixed rate, or a switch to the euro". "The domestic currency allows you to secure a powerful element of the overall economic policy, through which you can adjust the situation to real conditions," said Bajec. Beta

Vice-governor says Serbian currency is "undervalued"

"I don't know based on which calculations he concluded that the dinar was overvalued, considering that, had he taken a look at the NBS inflation report, he would have seen quite the opposite - that the exchange rate is at this point probably undervalued."

Dragutinović specified that the NBS quarterly report on inflation contained "a graph that showed current exchange rate deviations from an equilibrium path".

However, the vice-governor and former cabinet minister stated that she "completely agreed" with Krugman's assessment that a fixed dinar exchange rate would not be good for the Serbian economy:

"It is very difficult to have a fixed exchange rate in a country that has a very long-term, high payment balance deficit, which means it requires high amounts of capital inflow."

Economist Jurij Bajec, who served as adviser to former PM Mirko Cvetković, also commented on Krugman's assessments heard in Belgrade to concur that a flexible exchange rate was "a less bad solution that a fixed rate, or a switch to the euro".

"The domestic currency allows you to secure a powerful element of the overall economic policy, through which you can adjust the situation to real conditions," said Bajec.

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