Low inflation continues

Published: 8/9/2004

At its today's session, the Council of the Croatian National Bank, chaired by Governor Dr. Željko Rohatinski, reviewed recent economic and monetary developments, information on international reserves management in the first six months of this year and a report on the conditions in the banking system in the second quarter of the year.

Available data point to a growth in industrial production in June and July. Construction continued its dynamic growth from the previous year, though at a somewhat slower pace. The volume of trade in the retail sector in June grew also in real terms compared with the previous year. Tourism in that month fell behind the results in the previous year both in terms of the number of tourists and the number of night stays. The results of the peak season are still being calculated. While merchandise exports continued their steady growth from the previous year, imports are not losing their momentum either.

Following a 0.4% fall in retail prices in July, the annual rate of inflation measured by consumer price index fell to 1.9%. Core inflation in July was at an annual level of 1.6%. The effects of the August increase in the prices of refined petroleum products are not known yet, but with the oil markets' cooling down in September, they are not expected to have any significant effect on the country's total inflation figure for the year.

The money market was characterised by an increased demand for kuna during the summer months, created by tourism and a July issue of government bonds. As a result of such demand, interest rates on the money market were high. While banks' deposit rates on kuna sources rose somewhat in July, their lending rates fell mildly. Bank placements to the non-banking sector in July grew at an annual growth rate of 10.3%. Placements to households rose by HRK 1bn in that month, those to the business sector by only HRK 100m and those to the government by HRK 1.1bn (reflecting government's efforts towards increased reliance on domestic budget deficit financing).

In response to the appreciation pressures, common during the tourist season, the central bank held four foreign exchange auctions, purchasing a total of EUR 116m, thus creating HRK 852.8m in kuna liquidity. At end-August, the exchange rate of the kuna against the euro was 7.39, indicating kuna's weakening by 0.4% compared with end-June and its 3.3% strengthening compared with the end of the previous year.

At this session, the CNB Council also examined the application for merger of Dubrovačka banka d.d. Dubrovnik with Nova banka d.d. Zagreb. Nova Banka emerged following the sale of Dalmatinska banka, Istarska banka and Sisačka banka to Charlemagne fund and their merger into a new entity. With the same fund being the owner of Dubrovačka banka for some time now, the Council decided the owner should be granted approval to further consolidate its group.

The Council of the CNB agreed with the proposed reappointment of Šime Luketin as President of the Management Board of Credo banka d.d., Split.