Governor of the National Bank of Serbia (NBS) Dejan Soskic said Wednesday that there was no reason for "any kind of panic" over the weakening of the value of the Srbian dinar.

“The NBS has instruments it can intervene with,” Soskic said in an interview with Tanjug, adding that the country's “foreign currency reserves are at a very satisfactory level, they are sufficient to ensure financial stability.”

He said that the weakening of the domestic currency was “relatively modest” - 4.3 percent in the first two months of 2012, adding that “the speed and dynamics of the exchange rate changes are not unusual for the currency regime of the dinar.”

We should not forget that the dinar was very stable for a long time, “since November 2010, when the exchange rate was at about 107 dinars to the euro, until now, when the rate is at 110 dinars per euro,” said Soskic, adding that the changes now taking place are not unusual for currencies using the fluctuating exchange rate regime.

Speaking about the causes of dinar's weakening, Soskic pointed out that they were always related to investors' expectations
and that the investors probably estimated that the dinar was set for downturn.

“We have certain other developments as well - suspension of our relationship with the International Monetary Fund - a level of reserves with international investors that appeared as a consequence of that, which is something that the NBS had been warning could happen."

“All this has created a set of market circumstances that we are now facing, (but) we believe that there is no reason for concern, we follow the market developments closely and we are ready to use the quite significant and effective tools that we have within our jurisdiction,” said Soskic.

As for interventions in the foreign exchange market, the NBS governor said that the NBS would continue making interventions to reduce excessive daily fluctuations whenever it saw excessive nervousness and instability in the market, but not by going against the market trends because these should be determined by the offer and demand and it was entirely consistent with the exchange rate regime and inflation targeting.

“The NBS will continue pursuing its current policy when it comes to inflation targeting, but not when it comes to targeting the exchange rate, and it will also use foreign exchange reserves in terms of control of inflationary pressures that may endanger the financial stability of the country, in this way preventing the financial stability from falling in danger," he said.

Commenting on the opinions of some experts who said that Serbia should introduce a fixed exchange rate, Soskic pointed out that the fluent exchange rate had been chosen intentionally, since it, as a rule, reduced the potential cost that a country had to pay when affected by external instability.