At its meeting held on Wednesday, June 12, 2002 the Council of the Croatian National Bank, chaired by Governor Dr Željko Rohatinski, reviewed recent economic and monetary developments and made a number of decisions acting in accordance with its authority.

Macroeconomic stability has been maintained successfully. In the first five months of this year retail prices grew by 1.9 percent compared with last December. In May retail prices were 0.2 percent higher than in April and 1.8 percent higher than a year ago. Core inflation, which does not include prices of energy products, seasonal products and administrative prices, was 0.7 percent in the first five months of this year. Such developments are in favor of the assessment that the 2002 inflation rate will be lower than the 2001 inflation rate, especially if no further increase in oil prices occurs.

After the foreign exchange inflow, stirred by the euro conversion had dissipated, depreciation of the kuna exchange rate was observed in January. It was followed by an appreciation in February. A number of central bank interventions resulted in the net purchase of about EUR 500 million, which contributed to an increase in the central bank net international reserves to slightly more than USD 4 billion.

In response to occasional remarks that these funds are insufficiently used as an incentive for economic growth, the CNB Council noted that the central bank purchased foreign exchange by issuing kuna, which were directly channeled into the financial system to support the growth of bank lending to the enterprise sector (by 8.1 percent in the first four months of this year) and to the household sector (by 12.2 percent). Over the last year foreign exchange market interventions resulted in a total issue of HRK 7.5 billion. According to current forecasts, the amount of kuna to be issued this year will be even higher. By means of foreign exchange interventions the central bank also controls the strengthening of the kuna, which is facilitated by the net foreign exchange inflow from privatization and international borrowing.

At the Wednesday meeting the Council gave prior approval to Dalmatinska banka d.d. Zadar for merging with Istarska banka d.d. Pula and Sisačka banka d.d. Sisak, as well as for appointing Ms. Davorka Jakir as the chairwoman of that bank.

Furthermore, the members of the CNB Council were briefed on the recent consultations with the IMF Mission and on the parliamentary committees´ debate on the CNB annual report 2001. The Council members were also informed that immediately after the former public prosecutor made a statement related to a number of alleged irregularities and document forgeries in the operation of an unnamed commercial bank, the Croatian National Bank required more detailed information about this issue. The representatives of the Anti-Money Laundering Department and the newly appointed public prosecutor responded that they had no information which could provide a basis for such statement.