The Council of the Croatian National Bank, chaired by Governor Dr. Marko Skreb, met on Wednesday to review recent monetary and economic developments and discuss expectations for the third quarter of 1998. The Council also made the Decision defining the scope, form and contents of audit procedures and audit reports on banks' and savings banks' operations, as well as several other decisions, acting in accordance with its authorities.
Available statistical indicators show that industrial production, construction, and retail trade turnover have continued to grow, while transportation services and tourism recorded a lower level of business activity than in the same period last year. During the first five months of 1998, exports increased by 9.2 percent in kuna terms or by 0.8 percent in dollar terms, while imports grew by 4.7 percent in kuna terms, but decreased by 2.3 percent in dollar terms. These developments show that the forecasted reduction of the balance of payments deficit for 1998 is indeed taking place. The BOP deficit reached 12.6 percent of GDP in 1997, after it had amounted to 4.5 percent of GDP in 1996.
Main indicators of macroeconomic stability remained favorable in June. Retail prices were on the same level as in May. During the first six months of the year retail prices grew by 5.7 percent, compared to the same period last year. The cost of living in June was by 0.3 percent lower than in the previous month, although it grew by 5.7 percent in the first half of the year compared to the same period last year. Producer prices grew by 0.2 percent on a month-to-month basis and decreased by 0.4 percent on a half-year basis. Due to the central government budget surplus, the government did not need to use short-term borrowing from the central bank. Owing to a more balanced relationship between supply and demand on the Money Market, as well as to improved liquidity, a gradual reduction of interest rates is to be expected.
The exchange rate of the kuna to the German mark fluctuates within a narrow band, tending slightly towards depreciation, which in May amounted to 1.64 percent, and in June to 0.52 percent. The real effective exchange rate deflated by producer prices depreciated from the beginning of this year by 5.72 percent, increasing the competitiveness of exporters. In June however, as usual, appreciation occured occasionally on a daily basis, due to the approaching tourist season.
Taking into consideration these circumstances, the Council of the CNB concluded that no additional measures or changes in the monetary policy should be introduced in the coming period, and that the central bank will be able to purchase foreign exchange during the tourist season without fear of significant seasonal monetary expansion or considerable exchange rate oscillations.
Keeping in mind international best practise and the aim that audit reports on banks and savings banks provide users with objective, real and comparable data on business operations, the Council of the CNB made the Decision on introducing rules and standards for auditor's assessments of financial statements, as well as a whole range of key indicators on business operations, financial stability and financial institution quality. This will provide the Croatian central bank with a more complete insight into banks' operations, enhancing supervision and the timely introduction of measures necessary for the maintenance of banking system stability.
The Council of the CNB also decided on the issue and sale of commemorative silver coins dedicated to the 500th anniversary of Juraj Julije Klovic, and gave its approval to the Croatian company "Radnik" for minting the golden medal "Sv. Marko Krizevcanin".