The CNB Council today examined monetary and economic developments in the previous period, a financial system stability report for the third quarter of 2017 and a report on the banking system condition in the first half of the year. The Council also adopted the monetary projection for the 2017 – 2020 period.
Economic trends remained favourable in the third quarter of 2017 and available data for July and August point to an acceleration in real growth. The labour market was marked by a slowdown in employment growth and a weaker decrease in unemployment. Consumer prices on average held steady from July to August, while the annual inflation rate accelerated from 0.8% in July to 1.0% in August, primarily due to an in increase in the annual rate of change in energy prices. The CNB continued its expansionary monetary policy, while at the same maintaining high liquidity, which will from September also be supported by a pooling collateral management system for all CNB's credit operations. Lending to the household and corporate sectors picked up slightly in August and household kuna loans continued to grow. The current and capital account surplus narrowed a touch in the second quarter on an annual basis. External deleveraging continued, coupled with a very low inflow of foreign direct investments. As shown by Ministry of Finance cash data, the central government budget ran a considerable surplus in the second quarter and was almost balanced in the first half of the year, and public debt continued to drop.
The financial system remained stable in the third quarter. The country's risk perception improved, as shown by an upgraded credit rating outlook in September and a decline in CDS spreads, which have narrowed from 200 b.p. to approximately 100 b.p. since the beginning of 2017, thus reaching peer countries' levels. The overall systemic risk declined slightly, mostly because of somewhat more favourable short-term developments in the financial sector.