What the CNB did during the crisis

Published: 7/4/2011

With regard to the most recent insinuations about Croatian National Bank actions during the crisis, the following facts should be borne in mind.

In 2008 and early 2009, the CNB released EUR 4.5bn of liquidity. This was a result of the reduction of the rate of the minimum required foreign currency claims of banks from 32% to 20%, the cut in the reserve requirement rate from 17% to 14%, the abolition of the marginal reserve requirement and other monetary policy measures. The liquidity release at the peak of the financial crisis averted both difficulties in the government debt financing and the credit crunch in the country, while the nominal exchange rate was kept stable.

After that, the CNB announced the lowering of the reserve requirement rate in 2010 from 14% to 11%, which was to release additional liquidity of around HRK 9bn for the purpose of lending to the corporate sector. A third of that amount was freed up immediately by cutting the reserve requirement rate from 14% to 13%, while the release of the remaining amount was conditional on the establishment of an efficient mechanism for lending to the corporate sector, to be set up by the Government, the CBRD and commercial banks (models A and B), and results achieved by these models. Unfortunately, it turned out that the results were below expectations. This is why the CNB, independently from these models, cut the rate of the minimum required foreign currency claims from 20% to 17% at the beginning of 2011, thus freeing up additional EUR 850m.

Overall, by its measures from early 2008 to early 2011, the CNB released additional liquidity of EUR 5.4bn net, which is equivalent to around 12 percent of GDP. Therefore, the claims that the CNB response to the crisis was not timely and sufficient are entirely without foundation.