New monetary policy measures

Published: 16/5/2001

Pursuant to the decisions made by the Council of the Croatian National Bank, chaired by the Governor dr. Željko Rohatinski, at its meeting held on May 16 2001, the reserve requirement rate will be reduced from 23.5 to 22 percent and the base for calculating foreign currency reserve requirement extended to include the received foreign currency loans. This means that, as of July 9, not only the unified reserve requirement rate, but also the unified calculation base for kuna and foreign currency reserve requirements will be applied. To provide a gradual transition to the new requirement in the transition period, for calculating the foreign currency reserve requirement on June 8 banks will apply the current 23.5 percent rate to received foreign currency deposits and the 11 percent rate to received foreign currency loans. It will be possible to maintain the foreign currency reserve requirement both in euros and dollars.

In view of the fact that in March the weighted average interest rate on domestic currency deposits amounted to 3.6 percent, the CNB decided that the remuneration paid by the central bank on the allocated kuna reserve requirement will be reduced from 3.7 to 3.5 percent. The reduced remuneration rate will be applied as of July 9. The allocated reserves comprise funds kept in a special account with the Croatian National Bank, as well as funds allocated, for the purpose of maintaining the average amount of reserve requirement, to settlement accounts and to a special account with the CNB used for settling net position from the National Clearing System.

By introducing the described measures, the Croatian central bank reached the second stage of the unification of the kuna and foreign currency reserve requirements. The unification was initiated by the decisions of the CNB Council in September last year. While deciding on further unification of reserve requirements, the CNB Council took into account another long-term goal of the central bank: reduction of the reserve requirement rate. In current circumstances, considering the primary central bank goal of keeping inflation under control, the reduction of the rate could not have been larger. However, it is expected that by the end of this year another step could be made in that direction.

It was initially expected that the described measures would be introduced at a somewhat later date, when the foreign currency inflow from tourism grows stronger. However, recent developments in the foreign exchange market provided impetus to the central bank to act more promptly in order to neutralize current appreciation pressures on the exchange rate of the kuna. As concerns the foreign currency reserve requirement, the stated measures will have two effects: a reduction of the reserve requirement rate would result in reduced requirement, but, since the foreign currency calculation base is to be extended, the final result of the measure will be a net increase in the foreign currency share of the reserve requirement equivalent to about 2.3 billion kuna. At the same time, according to estimates, the reduction of the reserve requirement rate will result in about 320 million kuna freed up in the kuna reserve requirement accounts. That means that the supply on the foreign exchange market will decrease, but the domestic currency liquidity will be sufficient to ensure continuation of the satisfactory lending activities of commercial banks and to support further revival of economic activity without the negative inflationary effects.

At the Wednesday meeting, members of the CNB Council were also briefed on the prepared decision on the unified method of disclosing effective interest rates on loans and deposits. The making of this decision lies within the fields of competence of the Governor. It is planned that the decision, which has been open for discussion to commercial banks for the last few weeks, will be implemented as of the beginning of 2002. Its implementation should increase the transparency of supply, thus enhancing sound competition on the banking services market. In addition, it should provide the central bank with more reliable indicators for the analysis of developments in the banking system.

The members of the CNB Council were informed that the central bank has not yet received any request from the Italian bank Unicredito for the approval of its announced takeover of the majority stake in Zagrebačka banka. Should such a request reach the central bank in the following days, it will be adequately reviewed by the relevant central bank experts and submitted to the CNB Council, which will probably decide on it at the beginning of July.