At the meeting held on Wednesday, January 17 2001, the Council of the Croatian National Bank, chaired by Governor dr. Zeljko Rohatinski, reviewed recent economic and financial developments, adopted monetary policy projection for 2001 and amendments to the central bank financial plan for this year.

The main goal of the adopted monetary policy projection, defining the basic framework for conducting monetary policy in 2001, is the maintenance of macroeconomic stability. This means that the inflation rate for 2001 should not exceed 4.5 percent (the inflation rate for 2000 was 7.4 percent - prices in December 2000 compared with prices in December 1999, or 6.2 percent - average prices for 1999 and 2000 compared on annual level). Such inflation rate would enable further maintenance of the satisfactory exchange rate stability.

Basic guidelines for forecasting monetary developments in 2001 were forecasts of economic developments produced by the Croatian Government and agreed with the International Monetary Fund for the purpose of signing a new stand-by arrangement. Members of the CNB Council emphasized that it is of utmost importance for the realization of the monetary policy projection that the adopted government budget principles and numbers be followed up, with special attention given to the budget deficit and its financing in a way which will not limit the potential of monetary policy.

In such circumstances, monetary policy will provide the banking system with necessary liquidity, that is, satisfy the demand for money corresponding to real economic activity. Further reduction of interest rates on bank lending is also to be expected. Should the mentioned preconditions be fulfilled, Croatian international reserves could rise by somewhat more than USD 270 million this year.

This means that, in circumstances of price stability, monetary policy would contribute to overall economic and development policy efforts, thus following the principles and standards of the European system of central banks. However, members of the CNB Council reminded that in no case monetary policy can substitute for absence or delaying of structural reforms in the real sector.