At its meeting held on Wednesday, July 28, 1999, the Council of the Croatian National Bank, chaired by Governor Dr. Marko Škreb, reviewed recent monetary and economic developments and discussed the situation in the Croatian banking system.

As forecasted, modest recovery of economic activity present since this year's spring continued. In June, industrial production grew by 1.1 percent in comparison with June 1998, for the first time since September 1998. Developments observed in tourism are more favorable than those forecasted, although slightly worse than those recorded last year. The number of tourists remained on about 15 percent lower level compared with the level observed last year. However, it is expected that in August the number of tourists will come closer to the number recorded last year.

In terms of monetary indicators, it is encouraging that the decrease in foreign currency deposits seen in spring this year has stopped. Moreover, foreign currency deposits (in kuna terms) grew in June by 1.2 percent.

Another favorable indicator is the one related to developments in interest rates. The decrease in interest rates on the Zagreb Money Market in April and May influenced the reduction of commercial banks' lending rates in June. Thus, the average interest rate on kuna loans without the currency clause fell from 16.6 percent (recorded in May) to 14.2 percent. The interest rate on short-term kuna loans without the currency clause fell from 16.6 percent to 14.6 percent, and the interest rate on long-term kuna loans without the currency clause from 15.3 percent to 10 percent. Interest rates on kuna loans with the currency clause did not change - they remained on the level of 13.3 percent. Due to the decrease in lending rates and also due to the fact that deposit interest rates did not significantly change, the spread was reduced to about 10 percentage points, for the first time in a one year period. Government borrowing from the central bank remained on the level of 1.37 billion kuna.