The drop of the dinar against the euro since the beginning of the year was triggered by the freezing of the arrangement with the International Monetary Fund (IMF) and the departure of US Steel from Serbia, Vice Governor of the National Bank of Serbia (NBS) Bojan Markovic stated.

Markovic told reporters on the margins of the meeting entitled 'Strategic management and systems of support in strategic management', organised by the Faculty of Economics in Subotica, that the dinar dropped some 5 to 6 percent since the beginning of the year and that NBS sold EUR 550 million on the inter-bank foreign exchange market in order to prevent excessive daily volatility of the exchange rate.

Markovic noted that the oscillation of the exchange rate depends on many factors and that one of them is embodied in the current account deficit which can be removed through structural reforms and fiscal policy.

Unlike in the service sector, structural reforms will lead to improvement of productivity and competitiveness of the interchangeable goods sector, and the fiscal policy can contribute to a change in the source of total domestic product growth, away from consumption and more toward export-oriented branches, he stated.

In case these two mechanisms are used together with the continuation of the IMF arrangement, it is possible that there would be some developments on the foreign exchange market which are contrary to those in the first half of the year, Markovic stated.

The vice governor assessed that this can be done by spending less and investing more in export-oriented and import-substitution sectors.

All that is happening with the exchange rate reflects the situation in the Serbian economy, the state of external balance and it also affects the inflation. NBS is carefully monitoring the developments on the foreign exchange market and is there to ensure its stability, Markovic said.

The vice governor added that NBS main task is to maintain low and stable inflation.

The inflation rate in March totalled 3,2 percent on the inter-year level and NBS expects it to drop additionally in April, Markovic said and added that target inflation for 2012 amounts to 4 plus or minus 1,5 percent.