CNB defends kuna's stability

Published: 18/2/2009

In order to stabilise the exchange rate, the Croatian National Bank took several steps today to ease tensions and excessive fluctuations in the foreign exchange and money markets and to discourage speculative activities. This information was provided to the public by CNB Governor, Željko Rohatinski, at a press conference held today at the central bank.

The central bank accepted only half of slightly over HRK 8.5bn bank bids, with Ministry of Finance T-bills posted as collateral, in today's regular reverse repo auction, assessing that the HRK 4.25bn granted at 6 percent interest would suffice to maintain adequate levels of kuna liquidity in the system.

The central bank also intervened in the foreign exchange market today, selling EUR 184.72m at an average exchange rate of HRK 7.440584/EUR. This has enabled banks to acquire foreign exchange at a price more favourable than the one they required in interbank transactions or from their clients.

In addition, a CNB Governor's decision has provided for the minimum coverage of banks' foreign exchange liabilities by foreign exchange claims to be reduced from 25 to 20 percent. This has put at banks' disposal an amount of EUR 1.25bn, previously set aside as liquidity reserves.

Also mentioned should be the effects of central bank measures taken so far, including abolishing the marginal reserve requirement, reducing the prescribed minimum foreign exchange coverage from 28.5 to 25 percent, changing the reserve requirement currency structure and selling EUR 328m to banks from central bank reserves. Account should also be taken of banks' own foreign exchange reserves. Therefore, it is the CNB's view that despite all the pressures and uncertainties the stability of the kuna and the financial system can be preserved by a joint effort, which also involves making adequate adjustments in fiscal policy and in the level and structure of consumption. However, these objectives and tasks must not be pursued solely by the central bank.

Their foreign owners notwithstanding, banks should take into account the facts that they operate in the Croatian banking system, that thanks to business operations carried out with Croatian economic entities, citizens and the government they are now in a better condition than some of their parent banks and their subsidiaries in some other emerging markets, and that their future depends on the success in overcoming current difficulties and launching economic recovery.

It is therefore unacceptable to use blackmailing tactics and spread panic among the public in an effort to force changes in monetary policy which would enable banks to continue operating under the same conditions and maintain the same profit margins as if nothing has changed in the country or in the world, irrespective of the short-term and long-term consequences this may entail for the economy, the general public and the government.