Exchange rate stabilization

Published: 20/8/2001

Although exchange rate movements this year are not outside the range of their usual annual oscillations, the Croatian National Bank has assessed that the exchange rate has lately been somewhat affected by speculative behavior of certain banks. This can explain the pressure put on the domestic currency to depreciate, which took place earlier than usual for the season. The central bank decided to respond with adequate measures in order to curtail such influence on the exchange rate movements.

In a Decision issued by the Governor of the CNB on the amendments to the Decision governing bank's and savings bank's foreign exchange exposure to currency risk, the allowed percentage of total bank's and savings bank's risky positions, relative to their guarantee capital, has been reduced from 25 to 20 percent. In addition, the banks can no longer have a foreign exchange exposure larger than prescribed on the account of the "old" foreign exchange savings and public debt arising from these savings. The amended decision will be applied from September 1, this year.

The reduction in foreign exchange exposure from 25 to 20 percent was prompted by April changes in foreign exchange regulations, allowing juridical persons to buy foreign exchange and place them in their own accounts with authorized banks. Once in use, this option increased the autonomous influence of domestic juridical persons on the total position of banks, based on the expected exchange rate changes.

If deemed necessary, the Croatian National Bank shall take additional measures to keep the stability of the exchange rate under control and to protect the domestic foreign exchange market from speculative attacks. The fact that the international reserves in the accounts of the Croatian National Bank currently reach USD 4.27bn, which is by almost one billion dollars more than at the end of August last year, leaves sufficient space for all measures which might be thought useful to keep a satisfactory stability of the kuna, the oscillations of which have so far this year not gone beyond the range of +/-5 percent.