Banks' reserve requirement reduced

Published: 13/10/2004

At its Wednesday meeting, the CNB Council chaired by Deputy Governor Dr. Boris Vujčić, analysed the economic and monetary developments in the previous quarter, adopted the monetary policy projection for the end of this year and accepted the plan for the issue of commemorative coins and numismatic sets for 2005.

It was concluded at the CNB Council meeting that the summer measures aimed at reducing external borrowing were effective as regards banks, whose foreign liabilities were gradually decreasing. However, total external borrowing continues to grow, although at a slower pace relative to the first half of this year and to 2003 and 2002 in particular.

The CNB Council decision reducing the reserve requirement rate from 19 to 18 percent, adopted at this meeting, corresponds to the attempts to stabilise the external debt balance at the present level. Total amount of reserve requirements will thus be reduced by around HRK 1.8bn: by approximately 1.1bn in the kuna component and 0.7bn in the foreign exchange component of reserve requirements. In that manner, the central bank facilitates the realisation of the planned issue of government bonds, by means of which the Ministry of Finance intends to replace a portion of external debt with domestic borrowing. Reserve requirement reduction ensures a satisfactory banking system liquidity level for such a transaction. Since the government intends to use the collected kuna for an immediate purchase from the central bank of foreign exchange required for the repayment of Samurai bonds falling due in mid-December, such a purchase would offset the effect of this bond issue on the domestic monetary developments.

This decision is also in accordance with the long-term policy of the Croatian National Bank, aimed at a gradual reserve requirement reduction. It will be applied as of 8 November 2004, when reserve requirement calculation is to be performed next.