The Croatian National Bank intervened today in the foreign exchange market by purchasing EUR 28.4m at an average exchange rate of HRK 7.390444/EUR. Although today's price of the euro in the foreign exchange market was higher than the price used for inter-bank transactions the day before, the central bank nevertheless decided to intervene in the foreign exchange market to speed up the exchange rate stabilisation, following increased exchange rate fluctuations, also due, as it appears, to the latest disclosures related to government deficit financing.

The CNB remains committed to its primary objectives, price stability and the associated stability of the exchange rate. The monetary projection for 2004, adopted in December, is based on the assumption that these objectives may be achieved through a 10%, or a HRK 3.5bn increase in reserve money. The restriction still holds, being considered that such an increase provides sufficient room for the projected economic growth, while limiting the room for inflation growth, which is also the primary statutory responsibility of the central bank.

As announced earlier, the central bank has declared its readiness to make certain changes to its monetary policy to create space for this year's larger government deficit financing. The CNB is still committed to this objective, and continues to work on it to ensure its effective implementation at a time when the conditions are right. However, due to a number of reasons, the implementation is not possible at the moment. Meanwhile, the Croatian National Bank and the Ministry of Finance have agreed on a concerted action, each within their own field of competence, to keep financial flows and basic monetary indicators under control.

In this context, it should be mentioned that preparations are underway for the forthcoming talks with IMF representatives on the new stand-by arrangement that should also include an analysis of and a framework for the fiscal and monetary policies to be pursued in the future.