View Governor's responses to deputies' questions

Published: 7/11/2016

We have built the Croatian National Bank into a quality institution and it would not be good if the institution of the central bank be weakened and its independence brought into question, said the Governor in reply to the deputies of the Croatian Parliament during the discussion on the Semi-annual Information on the Financial Condition, the Degree of Price Stability Achieved and the Implementation of Monetary Policy in the second half of 2015, held on 4 November 2016.

I regret to see the discussion going in the direction of monetary policy politicising, Governor Vujčić said. Even before Croatia's accession to the European Union, the country had decided to have an independent central bank and it is key that it should continue to be so, regardless of who is running it.

Deputy clubs and deputies gave their opinion on the Semi-annual Information and posed a number of questions on the monetary policy of the Croatian National Bank, the opinion of the European Central Bank on amendments to the Act on the Croatian National Bank and the conversion of loans in Swiss francs. Deputies participating in the discussion were Grozdana Perić (HDZ), Miro Bulj (Most), Branko Bačić (HDZ), Ivica Mišić (PH), Branimir Bunjac (Živi zid), Boris Lalovac (SDP), Marin Škibola (Živi zid), Tomislav Žagar (SDP), Gordan Maras (SDP), Maro Kristić (Most), Željko Glasnović (NZ), Ivan Pernar (Abeceda demokracije), Goran Aleksić (SNAGA), Ivan Lovrinović (PH), Branko Grčić (SDP), Nikola Grmoja (Most), Andrija Mikulić (HDZ) and Ivan Klarin (SDP).

Governor Vujčić addressed the issue of sovereignity and explained that the CNB, with its monetary and regulatory policies, made it possible for Croatia to avoid entering into any arrangements with the International Monetary Fund and the European Commission. Had it not been for such a CNB policy, the Governor stressed, the sovereignity in decision-making would have been much smaller and the Croatian Parliament would have had to accept strictly set legislative packages under an arrangement.

Boris Vujčić reiterated that the Croatian National Bank had, ever since the problem with the Swiss franc had emerged, been actively involved in its resolution. It has proposed solutions and several models, guided by the principle that these models should mitigate the legal risk for the Republic of Croatia.

The European Central Bank regularly issues opinions on other central banks as well, said Governor Vujčić, and the claims that ECB opinion was produced by the CNB are an insult to the integrity and professional ethics exercised by Croatian National Bank employees and the institutions of the European Union.

The Croatian National Bank may not prohibit lending in the Swiss franc and any such prohibition would actually fall within the competence of the Croatian Parliament itself, which may change the provisions of the Civil Obligations Act, said the Governor. The Governor also noted that long-term home lending should be allowed in the kuna and the euro exclusively, since CNB's monetary policy is linked to the euro and since the Croatian National Bank intends to continue to pursue such a policy in the future. I am confident that this is the best monetary policy. It has made it possible to lessen the crisis instead of augmenting it and that is why we will continue to pursue it, the Governor said in conclusion, adding that if anyone thinks that a different monetary policy should be pursued, they should explain why and how, what instruments need to be changed, in what way and what effects would they produce.

The CNB does not offer a rosy picture of the world, said the Governor. There is no such thing as monetary or fiscal policy solving the structural problems. Printing money cannot solve structural problems such as regulation of the market in products, health and pension system, public administration efficacy and education. Similarly, population outflow is not associated with monetary policy.

An important fact that should be borne in mind is that the level of debt makes the country very vulnerable to disturbances in the international market, the Governor underlined. It is dangerous to think that currently low interest rates will remain low for a very long period of time since they create new risks to financial stability. These risks are rising by the day, and once the interest rates start rising, we will, provided we have a low potential GDP growth at this debt level, lose our sovereignity if we fail to meet our obligations.

The Governor also explained the role of the Croatian National Bank in bank regulation, emphasising that it is the business entities (the banks) that grant loans based on their business decisions and not the CNB. The role of the regulator is to protect bank deposits and determine the capital that banks are required to have, as a measure of balance between deposits and the risks assumed by banks when granting loans.