CNB Council:

Economic growth higher than expected

Published: 3/10/2001

At the meeting held on Wednesday, October 3, 2001 the Council of the Croatian National Bank, chaired by the Governor Dr Željko Rohatinski, reviewed monetary and economic developments in the past three months and adopted the monetary policy projection for the fourth quarter of this year.

In view of the 4.5 percent growth of economy in the first half of the year and on the basis of the available monetary and economic development indicators for the third quarter of the year, Croatian central bank analysts expect that the real GDP growth for 2001 could be about 4.2 percent - a growth rate exceeding the previous forecasts. Recent developments in prices were crucially influenced by the August growth of 1.8 percent. This could result in the inflation rate for 2001 being slightly higher than previously expected, even with less dynamic movements of prices in the last quarter of the year. Due to the central bank's interventions on the foreign exchange market and other measures introduced for the purpose of stopping speculative behavior on the forex market, exchange rate fluctuations were reduced with a slightly downward tendency of interest rates remaining intact. The level of international reserves enables the central bank to maintain a satisfactory stability of the exchange rate.

Monetary policy in the fourth quarter of the year will largely depend on the amount and the way of financing the budget deficit. These elements will also determine to a great extent the dynamics of further unification and reduction of the reserve requirement. Another restraint on the reliability of monetary forecasts is the uncertainty related to global developments, especially those referring to the dollar/euro exchange rate. In addition, at this moment it is not possible to determine the amount of foreign currency to be transferred from Croatian households into banks for the purpose of being exchanged for euro.

The decision on the reserve requirements was amended to include hybrid and subordinated instruments in the calculation base for the reserve requirement. These instruments have some elements of capital, but also certain elements of bank's liabilities. Since considerable growth of assets collected by banks on the basis of these instruments has been observed recently (their value increased sixfold in the past three months), it was concluded that such growth rate might have negative influence on the effectiveness of measures taken by the central bank in the past three months for the purpose of preserving the stability of prices. By including the stated instruments in the reserve requirement calculation base the central bank strives to ensure a more consistent implementation of the adopted measures which - as estimated - will result in the growth of kuna reserve requirement by about HRK 153 million and of foreign currency reserve requirement by HRK 409 million.

At the Wednesday meeting, the CNB Council approved the nominations of Mr Sava Dalbokov for member of the management board of Erste & Steiermärkische banka d.d. Zagreb, Ms Marija Kolarić for member of the management board of Hrvatska banka za obnovu i razvitak and Dr Adelheid Fazekas for member of the management board of Riječka banka d.d. Rijeka.

Another six banks were given approval for keeping legal persons accounts and conducting payment transactions across these accounts: Cassa di Risparmio di Trieste - Banca d.d. Zagreb, Dalmatinska banka d.d. Zadar, Gospodarsko-kreditna banka d.d. Zagreb, HVB Bank Croatia d.d. Zagreb, Istarska banka d.d. Pula and Splitska banka d.d. Split.

The Council of the Croatian National Bank gave its approval for acquiring up to 100 percent of voting shares in Dalmatinska banka d.d. Zadar to Reginter d.o.o., the company that already owns a majority stake in that bank. The companies Stražaplastika d.d. Hum na Sutli and Strahinjčica d.d. Krapina were given approval for acquiring more than 10 percent of voting shares in Krapinska štedionica d.d. Krapina. Varaždinska štedionica Kovanica d.d. Varaždin was given approval for the amalgamation of Štedionica Zagišted d.d. Zagreb.