At its meeting held on Wednesday, February 13, 2002 the Council of the Croatian National Bank, chaired by the Governor, Dr Željko Rohatinski, reviewed recent monetary and economic developments and reached several decisions in accordance with its authority.

Following a year-on-year retail price inflation rate of 2.6 percent recorded at end 2001, total retail prices in January this year increased by 0.8 percent compared with the previous month and by 3.3 percent compared with January last year. The January increase in prices was mostly fueled by the rise in the prices of agricultural products, beverages, petroleum products and administrative prices of certain services. In January, retail prices that are included in the calculation of core inflation were only 0.2 percent higher than in December and 1.9 percent higher than in January 2001.

Monetary developments in the last quarter of 2001 were marked by a strong growth in household foreign exchange deposits which reached its peak in December. Such developments were largely brought about by the conversion of twelve eurozone currencies in the euro. However, according to available indicators, the deposits were not withdrawn from banks at the beginning of this year. On the contrary, there are certain indications that foreign exchange deposits (increased by about 2 billion euro) are still growing mildly or at least stagnating on the December level.

Taking into consideration the low level of interest rates on foreign exchange deposits abroad, the CNB Council expects that the interest of Croatian banks for domestic lending will grow. The continuous downward tendency of interest rates is expected to boost credit demand; in January interest rates in daily and overnight trading plunged to below 1 percent, interest rates on corporate lending fell to about 5.4 percent (short-term lending) and 7.5 percent (long-term lending), and interest rates on long-term household lending are trending towards one-digit figure. Since lending based on foreign exchange liabilities is followed by the conversion of foreign exchange assets into the kuna, the CNB Council expects stronger appreciation pressures, already to be observed. Following kuna depreciation of 2.7 percent against the euro and 4.6 percent against the US dollar in January, the trend of the exchange rate of the kuna reversed towards appreciation. This trend might continue, encouraged by every additional significant foreign exchange borrowing. In such circumstances, the crucial question facing the Croatian central bank is how to avoid accelerated appreciation of the kuna without promoting inflation growth or, in other words, how to preserve the stability of prices in the conditions of growing commercial bank lending.

At the meeting held on Wednesday, the CNB Council agreed with the nominations of Mr. Miro Dodić for president of the management board of Istarska kreditna banka d.d. Umag for one more term of office, Mr. Ivan Purgar for president of the management board of Kreditna banka d.d. Zagreb, as well as with the nominations of Ms. Helena Banjad and Mr. Zorislav Vidović for members of the management board of Dalmatinska banka d.d. Zadar.

The CNB Council also reached the decision defining conditions under which domestic legal and natural persons can be given approval for keeping foreign currency in bank accounts abroad, and approved of the issue of kuna and lipa coins, bearing the year of issue 2002.