At its Wednesday meeting chaired by the Governor, Dr Željko Rohatinski, the CNB Council discussed economic and monetary developments in the past three months and adopted a monetary policy projection for the last quarter of 2005 as well as passed several decisions falling within its field of competence.

Accelerated GDP growth in the second quarter, indicating that GDP results for 2005 will be better than previously expected, was the most important economic development. A significant contribution to this growth came from revived investments and net exports of goods and services in the second quarter.

As for prices, their growth over the past period also exceeded expectations, thus placing the annual inflation rate estimate at some 3.7%. The causes for this are to be found on the supply side (increase in the price of oil, rising prices of fruit and vegetables due to the unfavourable weather this year), where the positive effects to be achieved by the monetary policy are limited. The announcement of the start of Croatia's EU accession negotiations was followed by growing appreciation pressure. However, the exchange rate stabilised after only one CNB intervention in the foreign exchange market.

The external debt is estimated to reach some 83% of GDP at the end of this year as compared with 82% at the end of last year. To a great extent, the government started borrowing in the domestic market. The growth of bank placements at a slightly higher rate than last year was largely enabled by an increase in foreign currency household deposits. The latest indicators show that foreign borrowing by banks has been reducing, while foreign borrowing by other sectors has continued growing.

In view of all this, the CNB Council agreed that there will be no important changes in the monetary policy over the rest of the year. It envisaged only some "technical improvements" to the existing monetary policy instruments, aiming at achieving easier liquidity management in the system.

The CNB Council endorsed the proposals of the supervisory boards of several banks for new management appointments: the appointment of Zoran Sikirica as member of the management board of the Hypo Alpe-Adria Bank d.d., Zagreb, the appointment of Sandi Šola as chairman of the management board and Sanda Cvitešić as member of the management board of Karlovačka banka d.d., Karlovac, the appointment of Nenad Jeđud as chairman of the management board of Međimurska banka d.d., Čakovec, and the appointment of Vlasta Žubrinić Pick as member of the management board of Raiffeisenbank Austria d.d., Zagreb.