On Wednesday May 6, the Council of the Croatian National Bank, chaired by Governor Dr. Marko Skreb, held its regular meeting to review recent economic and monetary developments, examine the special audit program for a selected group of Croatian banks and the report on international reserves management in 1997. The Council was briefed on the results of the successfully conducted reintegration of the Croatian Danube Area into the payment system of the Republic of Croatia. Mr. Borislav Skegro, vice-president of the Croatian Government and finance minister of the Republic of Croatia, and Mr. Djuro Njavro, president of the Parliamentary Committee for Budget and Finances, attended the meeting of the Council.
The main indicators confirmed that in April macroeconomic stability was not disturbed. Therefore, no changes in monetary policy are necessary. The transitional impact of the value added tax has subsided, so that in April retail prices grew by 0.3 percent, cost of living by 0.5 percent and producer prices by 0.2 percent. The exchange rate of the kuna remained within the framework of usual seasonal fluctuations. From the beginning of 1998, the kuna depreciated by 1.8 percent in relation to the German mark. In the same period, the real effective exchange rate (deflated by producer prices) depreciated by 3.72 percent, contributing to the competitiveness of exports. The Council concluded that this year's seasonal depreciation seems to be somewhat higher than last year's - probably due to the fact that payments for record high imports at the end of 1997 fell due in the first months of this year.
However, it can be forecasted that - due to the seasonal increase in foreign exchange supply - the exchange rate fluctuations will subside, giving way to a gradually increasing appreciation pressure. Therefore, the Council does not expect any significant intervention by the central bank in the foreign exchange market. Such expectations are supported by the fact that on Wednesday the Croatian National Bank sold to commercial banks DEM 10.6 million at the average exchange rate of 3.5824 kuna due to be repurchased by the end of June. Relatively few banks were interested in the abovementioned auction, which emphasizes the fact that there is no significant discrepancy between supply and demand on the foreign exchange market.
In 1997 intervention in the foreign exchange market was the main instrument of the CNB's monetary policy, and more than 99 percent of CNB's assets were foreign currency. The CNB issued about HRK 1.9 billion through 14 interventions in the foreign exchange market. Last year international reserves of the Croatian National Bank increased by USD 225 million based on the current exchange rate or by USD 444 million based on the dollar exchange rate at the end of 1996.
The Council of the Croatian National Bank discussed the progress of the rehabilitation and restructuring of Dubrovacka banka. It was noted that savers are less worried about their deposits at this bank, which echoes savers' attitudes towards other banks which were rehabilitated under government surveillance. Especially encouraging is the fact that the Dubrovacka Banka crisis had no wider repercussions on the confidence in the Croatian banking system as a whole: the March increase of foreign currency deposits was comparable to the average monthly increase recorded in the past six months.
The Council of the CNB agreed on the nomination of Mr. Tomislav Vujic for Member of the Management Board of Trgovacka Banka d.d. Zagreb and Mr. Antun Sermek for Member of the Management Board of Hypobanka d.o.o. Zagreb.
The Council also selected Rijecka Banka to cooperate on a project entitled "Famous Croatian Women", to finance, produce and sell memorial coins dedicated to Ivana Brlic-Mažuranić. Rijecka Banka was chosen from tenders submitted by a number of banks.