The Council of the Croatian National Bank decided to reduce the required reserve ratio by 2.35 percentage points, that is from 31.85 to 29.5 percent, starting from May 29, 1998. This decision was made by the Council of the Croatian National Bank chaired by Governor Dr. Marko Škreb at its meeting on Wednesday, May 27, 1998. The Croatian central bank has previously announced a reduction of the required reserve ratio. This decision is consistent with the monetary policy trend of the past two years in which the required reserve ratio was gradually but significantly reduced. The Council passed the decision at this time because of the following reasons:

As it has in the past years, in anticipation of the tourist season, the central bank must introduce measures to ensure increased liquidity in the financial system which will enable business entities, primarily exchange offices, to perform exchange operations without difficulties. Furthermore, having reviewed developments in liquidity in the financial system as a whole, the Council concluded that the effects of the value added tax and other tax revenues have resulted in higher liquidity of the government budget, which has led to increased liquidity oscillations in the banking system. The Council expects the oscillations to be overcome by the freeing of funds through the reduction of the reserve ratio.

The Council of the Croatian National Bank also believes that this measure will enable the reduction in interest rates.