CNB Council: Exchange rate stable, inflation decreasing

Published: 12/11/2013

Domestic economic activity stabilised in the first half of the year, after a years-long decreasing trend. Mild recovery in the second quarter was facilitated by somewhat more favourable developments in the eurozone, the recovery on international financial markets, and favourable one-off effects related to the accession of the Republic of Croatia to the EU and to introduction of fiscal cash registers. However, available indicators for the third quarter do not suggest a permanent turn - this is the assessment of the CNB Council given at its session held today.

The third quarter saw a further decrease in the total volume of production. Construction also declined considerably. Tourism suggests a growth in the number of guests and nights, but this refers only to foreign tourists, while the number of domestic tourists fell. Real retail trade turnover decreased as well. Adverse labour market developments affect the further decline in consumer and business optimism.

The kuna/euro exchange rate is stable, and inflation measured by consumer prices during the first half of the year is considerably slow, falling from 5.2% in January to 2.0% in June. The downward trend continued in the third quarter, and the annual growth rate of consumer prices was 1.1% in September.

The central bank maintains an expansionary monetary policy which results in high banking system liquidity. Interest rates on T-bills decreased to a historic low, in corporate placements interest rates decreased on short-term loans, and also on long-term loans but to a lesser extent, while household financing conditions remained the same. In the structure of loans the share of placements to the government and to public enterprises increased, while household and corporate placements declined.

However, this is not a classical case of ''limiting'' the private sector's access to financing sources: weak demand for loans, growing risk aversion, rise of bad loans and tightened lending terms limited the effects of the expansionary monetary policy on the growth of loans. At the same time this suggests the limited reach of stimulating economic recovery through the expansionary monetary policy in the conditions of insufficiently quick structural reforms which would result in a faster inflow of direct foreign investments in export-oriented activities etc.

The Council of the Croatian National Bank approved the nominations proposed by the supervisory boards of four banks: the term of office for Christoph Schöfböck as a member of the Management Board of Erste&Steiermärkische Bank d.d., Rijeka was extended; Markus Ferstl was reappointed as president and Tea Martinčić as a member of the Management Board of Hypo Alpe-Adria-Bank d.d., Zagreb; Mićo Tomičić was reappointed a member of the Management Board of KentBank d.d., Zagreb; and Mario Žižek, Jasna Širola and Vesna Ciganek-Vuković were reappointed members of the Management Board of Raiffeisenbank Austria d.d., Zagreb.