2014-01-28 15:40:07.0

Weakening of the Dinar Caused by Movements in International Financial Markets

Depreciation pressures on the dinar since the beginning of the year are caused by seasonally higher foreign exchange demand of domestic enterprises, notably energy importers, as well as by anxiety in international financial markets over the anticipated tapering of the US monetary stimulus. Nearly all currencies in the region depreciated, as did the currencies across emerging markets. Most of these countries also recorded a rise in their risk premiums as a result of higher yields and the price of their sovereign debt. However, while the dinar lost only around 1%, the Turkish lira, despite massive central bank interventions, fell against the euro by 7.6%. At the same time, the Hungarian forint lost 2.3%, the Romanian leu 1.7% and the Polish zloty around 1%. 

The NBS is consistent in implementing its intervention strategy. Namely, it intervenes in the foreign exchange market on both the sale and purchase side in order to ease excessive short-term volatility of the dinar. Just as it sold foreign exchange in January this year, the NBS intervened heavily in late 2013 by buying foreign exchange to mitigate the appreciation pressures which prevailed at the time. It is important to note that the NBS evaluates the character of pressures on the exchange rate by monitoring not only trade volumes in the interbank foreign exchange market, but also by considering other developments which could lead to greater upheavals in the shallow foreign exchange market.

Governor's Office

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