CNB Council discusses world economic crisis

Published: 14/10/1998

At the meeting held on Wednesday, October 14, 1998 Council of the Croatian National Bank, chaired by Governor dr. Marko Škreb, examined recent economic and financial developments in the country and abroad and made several other decisions acting in accordance with its authority.

The greatest economic crisis in the past five decades is becoming a cause of growing concern in the world. Consequently, previously produced prognoses of the world economic growth for this and the next year are being halved or reduced to even lower levels. Large banks are reducing their credit exposure, and direct investors are growing more cautious, especially in relation to emerging markets, including all transition economies. Conditions for foreign borrowing are getting harder, and financial obligations for loans already taken are becomig due. Thus, the Council of the Croatian National Bank believes that all economic and financial policy makers in Croatia must take into consideration these developments. Under these heavy circumstances it is of utmost importance to preserve macroeconomic stability and a special role in this matter is to be played by fiscal policy, that is, by adequate adjustments of public expenditures.

At the Wednesday meeting, the Council of the Croatian National Bank decided to increase the interest it pays on mandatory reserves from 4.5 to 5.9 percent, since it believes that this will enhance the reduction of lending rates in Croatian banks. Additionaly, due to changed circumstances under which banks can borrow funds abroad, the Council decided that banks no longer have to deposit with the central bank (in kuna) a percentage of foreign loans earmarked for conversion in kuna, as well as a percentage of loan guarantees, provided that the loans are exceeding one year. The Council also decided to abolish the requirement according to which banks had to make deposits in kuna on all foreign currency deposits with maturity exceeding one year that were received from foreign banks. Deposits made with the Croatian National Bank will be repaid after the period of 12 months following the date on which they have been accepted, regardless of the maturity of the short-term foregn borrowing, or the period during which the quarantee is valid, but provided that the whole amount of the loan has been paid back.