Serbia raises reserve requirement to 30%

China’s doing it. Brazil’s doing it. Turkey’s doing it. Now Serbia has also substantially increased the proportion of deposits banks will need to keep with the central bank.

The reserve requirement on foreign-currency deposits has been hiked to 30 per cent from 25 per cent. They have been kept constant on dinar deposits of less than two years, and cut to zero on dinar deposits of more than that. Many Serbs and Serbian businesses prefer to deal in euros, perhaps remembering hyperinflation in the 1990s.

In an all-out attack on sharply rising inflation, Serbia also raised interest rates by 50bp this week, taking the highest rate in Europe yet higher. The increase was smaller than two more recent rate hikes, which were a percentage point each.

Raising reserve requirements is a way of reducing liquidity and dampening inflation without attracting further inflows of capital (an unfortunate consequence of raising rates). The Bank hopes the move will decrease the need for further rate rises, saying: “The changes are expected to alleviate the need for upward revisions of the key policy rate in the coming period.”