The Council of the National Bank of Croatia chaired by Governor Dr. Marko Škreb held its 100th meeting on Wednesday, October 1. After looking back at the developments and changes which occurred over the past six years of existence of the independent Croatian central bank, and which can be clearly evidenced by 399 decisions and 383 internal documents made by the Council of the NBC since the beginning of its work in February 1992, the Council reviewed recent economic and monetary developments, as well as the basic guidelines of monetary policy for the last quarter of this year. The Council also examined the report on the financial performance of the National Bank in the first half of the year, the movements in international reserves during the first eight months of this year and considered amendments to certain provisions regulating reserve management that should ensure a higher level of safety, liquidity and profitability in terms of reserve management.

Available indicators confirmed that monetary developments remained in line with overall economic activity which showed stable growth rates in 1997. All real sector covered by statistical data has recorded a higher level of economic activity than in 1996. Capital expenditures increased, but so did trade deficit as well as total current account deficit. In spite of the growth of monetary aggregates and the satisfactory level of the money supply, the value of the national currency remained stable. Retail prices in September went up by 0.3 percent compared to the previous month. Total retail price nine-month growth compared to the same period last year was 3.7 percent. The exchange rate of the kuna continued to be stable during summer months which were characterized by an increased supply of foreign exchange.

By the end of September international reserves managed by the National Bank reached the amount of USD 2.49 billion (calculated on the basis of the current exchange rate). If the referential rate determined as of December 31, 1996 were to be used, the current value of international reserves would amount to USD 2.68 billion. International reserves represent 99 percent of total assets of the National Bank of Croatia, and proceeds from their placements abroad account for 94 percent of total earnings of the National Bank in the first half of the year. Interventions in the foreign exchange market have become the main instrument of high-powered money creation. The National Bank of Croatia held 14 auctions in the previous months, purchasing USD 341.2 million and selling USD 78.7 million (the value of foreign exchange purchases and sales was determined on the basis of the current exchange rate).

Special attention was paid to indicators showing that domestic currency savings, in particular time deposits, kept growing. While in 1996 the average monthly growth of domestic savings amounted to HRK 91 million, this year's average monthly growth of savings has amounted to HRK 200 million. Interest rate indicators also proved to be favorable. Thus, the average lending rate of commercial banks on kuna loans was reduced to 14.2 percent in August. However, the wide spread between lending and deposit rates continues to signal high operating costs of commercial banks and calls for rationalization of their business operations. The most unfavorable indicator is the one related to the balance of payments: namely, the deficit of the current account recorded in the first half of the year amounts to USD 1.55 billion, which is significantly higher than in the past year. A very good tourist season should reduce this imbalance, but it is evident that the movements in the current account should continue to be monitored closely.

The Council of the National Bank of Croatia concluded that there were no reasons for changing monetary policy to be pursued in the last quarter of this year and that monetary policy could retain its neutral stance with regard to the developments in the real sector. Thus, the interventions in the foreign exchange market and trading in NBC bills will be adjusted according to movements in economic activity and in liquidity of the financial system, while preserving macroeconomic stability.

At its Wednesday meeting the Council of the National Bank of Croatia granted an operating license to Stedionica Kovanica d.d. Varazdin, and approved the nominations of Mr. Ratko Spirelja for Chairman of its Management Board and Ms. Lidija Hocurscak for Member of the Management Board of the same savings bank. In addition, the Council granted an operating license to Primorska stedionica d.d. Rijeka, and approved the nominations of Ms. Lada Tomas for Chairman of its Management Board and Ms. Irena Galogaza and Mr. Darko Jagodic for Members of the Management Board of the same savings bank. Further, the Council approved the nominations of Mr. Zdravko Bubalo for Chairman of the Management Board of Dalmatinska banka d.d. Zadar, Mr. Heinrich Angelides for Chairman of the Management Board of Volksbank d.d. Zagreb and Mr. Julio Krevelj for Member of the Management Board of the same bank. The Council of the National Bank of Croatia gave its approval to the nominations of Ms. Marija Ribic for Member of the Management Board of Medjimurska banka d.d. Cakovec, and Ms. Vera Radas for Member of the Management Board of Slatinska banka d.d. Slatina.