The Council of the Croatian National Bank at its meeting held on Wednesday, chaired by Governor Dr. Rohatinski, reviewed recent economic and monetary developments and adopted measures aimed at containing the growth of bank borrowing based on issued securities, as well as several decisions within central bank competence.

As shown by the available indicators of economic activity, the last quarter of 2005 was largely marked by positive real sector developments. The total volume of industrial production rose by 6.9% in December compared with the same month previous year, with its annual growth rate for the entire 2005 standing at 5.1%.

The annual growth rate of consumer prices fell from 3.8% in November to 3.6% in December, while the annual growth rate of core inflation declined from 3.1% to 3.0% during the same period.

Bank placements to the non-banking sector continued to grow sharply. With their annual growth rate in December standing at 17.2%, total bank placements to that sector reached HRK 149.2bn at end-2005. Of that amount, HRK 78.6bn went to household loans which grew by 20.3% in 2005. Placements to the corporate sector rose by a total of 14.3% annually. The significant growth of bank placements continued into January, reaching, according to preliminary data, 17.9% in the first twenty days of the month, compared with 31 January 2005. In view of such developments and to prevent the banks from resorting to securities issuing to circumvent restrictive central bank measures, particularly in view of their sufficient liquidity for acceptable placements' growth, the Council of the CNB decided to introduce a special reserve requirement to be allocated by banks on their liabilities arising from issued securities. The base for the calculation of this requirement is any increase in the average daily balance of issued securities in a specific period of time compared with the average daily balance of the issued securities in the period from 1-31 January 2006. The entire requirement shall be allocated, interest-free, to the accounts with the CNB and its application is scheduled for the beginning of March. Set at a high 55%, the rate of this special reserve requirement is believed by the CNB Council to be sufficient to discourage banks from further borrowing on the basis of issued securities. If today's decision fails to bring satisfactory results, the Council of the CNB stands ready to take further measures as necessary.

The Council of the CNB has also reached a decision prescribing in detail the conditions for carrying out currency exchange transactions and the documentation that must be submitted to the CNB to get the authorisation for currency exchange transactions. Pursuant to this decision, all the existing currency exchange offices must submit an application for authorisation to the CNB until 6 December 2006, at the latest.

At today's meeting, the Council of the CNB agreed with supervisory board proposals of management board appointments of several banks. Thus Miro Dodić will continue to act as the President of the Management Board of Istarska kreditna banka Umag d.d., Ivan Purgar, as the President of the Management Board of Kreditna banka Zagreb d.d. and office term extension was also granted to Stipan Pamuković, the President of the Management Board of Nava banka d.d. Zagreb and Željko Škalec, Management Board member of the same bank.

Concern Agram was granted approval for the acquisition of a qualified holding in Kreditna banka Zagreb d.d.