Exchange rate fluctuations do not require changes in monetary policy

Published: 30/9/1998

The Council of the Croatian National Bank, chaired by Governor Dr. Marko Škreb, met on Wednesday to review recent economic and financial developments and examine the guidelines of monetary policy for the last quarter of this year. The Council also approved the report on financial performance of the Croatian National Bank in the first half of 1998 and made several other decisions acting in accordance with its powers.

The Council of the CNB paid special attention to exchange rate developments during the past few weeks. It was noted, namely, that the depreciation of kuna occured earlier than in the same period in the previous years. Members of the Council and CNB experts believe that these movements, which differ from usual seasonal movements previously recorded, can be explained by the convergence of several factors: due to the Asian and Russian crisis, foreign investors are investing more cautiously in transition economies, which exerts negative influence on capital inflows and makes it more difficult for governments and banks to obtain necessary funds on international financial markets. In these circumstances, more attention has to be paid to timely obtaining of foreign currency funds to be used for the fulfillment of financial obligations becoming due in the coming period. All these factors influence the balance between supply and demand on the foreign exchange market. Since the level of banking system liquidity is relatively high lately, it is quite understandable that all these elements reflect in the movements of the exchange rate.

The Council of the CNB concluded that the characteristics of exchange rate fluctuations do not require changes in the adopted monetary policy stance, even more so due to the fact that the international reserves of the CNB are sufficient enough to prevent higher upward movements of the exchange rate. However, should it be observed that the intensity of exchange rate fluctuations has no foundation in developments of the real economy, appropriate measures will be introduced. Several additional factors have to be kept in mind as well: according to available indicators, current account deficit in 1998 will be reduced to 7-8 percent of the GDP, which is a significant improvement compared to 12.8 percent of the GDP in 1997; the balance between merchandise imports and exports improved; in the first part of 1998 revenues and expenditures of the government budget reached a satisfactory balance (special attention should be paid to this issue in the coming period, so that monetary policy could maintain satisfactory stability of prices and the kuna); and, finally, it has to be noted that the economic growth continues.

At its Wednesday meeting, the Council of the CNB approved the nomination of Ms. Jadranka Gotovac for member of the management board of Dalmatinska Banka d.d. Zadar, Dr. Branko Bilic and Mr. Kristo Jovanovic for members of the Management Board of Trgovacko-turisticka banka d.d. Split and Mr. Ivo Bilic for member of the management board of Bank Austria Creditanstalt Croatia d.d.. The Council also agreed with the nomination of Mr. Nediljko Matic for member of the management board of Privredna Banka Zagreb d.d.

The Croatian Mint was granted approval for minting two gold medals: "Pohod Svetog Oca pape Ivana Pavla II gradu Splitu" and "Papa Ivan Pavao II u Mariji Bistrici i proglašenje blazenim kardinala Alojzija Stepinca". The gold medals will be minted in two dimensions, the small and the large one. The Coucil approved the mintage of not more than 3,000 pieces of each medal.