The demand for foreign currency stabilized again

Published: 1/3/2000

At its meeting held on Wednesday, March 1, 2000, the Council of the Croatian National Bank, chaired by Governor dr. Marko Škreb, reviewed recent economic and monetary developments, as well as the progress of the domestic payment system reform. The Croatian Finance Minister dr. Mato Crkvenac and Mr. Jadranko Mijalić, President of the Parliamentary Committee for Budget and Finances, also attended the meeting.

Monetary developments in January were characterized by a decrease in total liquid assets and an increase in foreign assets of the banking system in comparison with the end-of-the-1999 data. During a certain period, selling rates at exchange offices were higher than those offered by commercial banks, which was a consequence of increased demand for foreign exchange related largely to electoral period. However, preliminary February data indicate that the demand for foreign exchange stabilized again. Developments on the Money Market point at good liquidity of the system: supply is exceeding demand, thus lowering pressures on the market and reducing fluctuations of interest rates. Also, interest rates on long term borrowings on the Money Market decreased.

The February developments of the kuna exchange rate remained within expectations. In the first three weeks of February the kuna depreciated against the German mark by 0.11 percent. The exchange rate of the kuna against the US dollar appreciated by 0.12 percent at the end of this period compared to the end-of-January data. From the beginning of the year the kuna depreciated by 0.65 percent against the German mark and by 2.37 percent against US dollar. These developments indicate that pressures on the foreign exchange market dissipated in comparison with developments observed in the same period last year when the German mark and the US dollar appreciated against the kuna by 3.46 and 9.96 percent respectively.

The CNB Council believes that an encouraging indicator is the reduction of the trade and current account deficit: trade deficit for 1999 was reduced by 9.8 percent compared to the 1998 deficit, and the current account deficit for the first nine months of 1999 narrowed by 33.0 percent compared to the same 1998 period.

At the Wednesday meeting the CNB Council was briefed on the progress of the Croatian payment system reform. Members of the Council emphasized that, during preparations related to the new payment system infrastructure, the current Law on Domestic Payment System should be changed or the new Law enacted, offering a solution to the problem of the role of the Agency for Domestic Payments and the Croatian Post in the new payment system and, consequently, enabling a consistent and thorough implementation of the reform.