IMF delegation visits CNB

Published: 30/3/2009

A delegation of the International Monetary Fund headed by Mr Athanasios Arvanitis met with CNB Governor Dr Željko Rohatinski and his associates at the Croatian National Bank on Monday.
They discussed current macroeconomic developments and central bank expectations, goals and instruments of exchange rate policy and overall monetary policy, external debt and prospects for its refinancing, as well as the situation in the banking sector and its response to the impact of the global financial crisis.
According to Governor Rohatinski, there are three major limiting factors that need to be taken into account in projecting future developments: weakened export demand, reduced foreign direct investments, and lower availability and higher costs of external financing. In such circumstances, it is necessary to contain the current account deficit, which requires a policy of thrift throughout the country and cuts in all spending areas, particularly budget spending. All this will inevitably be reflected in a fall in gross domestic product.
Against this background, monetary policy faces two extremely important tasks: the maintenance of exchange rate stability, on which the maintenance of overall system stability largely depends, and prevention of a credit crunch in the country. The rise in prices in the first two months of 2009 will certainly affect the annual rate of inflation, although inflationary pressures are not expected to build up.
Some EUR 12 billion of principal and interest payments on foreign debt comes due in 2009. Of this amount, approximately one sixth relates to the government, which intends to raise funds by issuing eurobonds, while the bulk relates to banks and enterprises. Available data for January indicate that the latter two sectors are still able to obtain additional funds from abroad. If one also considers that domestic corporate loans are currently growing faster than household loans, it seems that funding of enterprises should not be a problem, particularly if they are not squeezed out of the financial market by the government.