At its Wednesday meeting chaired by Governor Dr Željko Rohatinski, the Council of the Croatian National Bank reviewed recent economic and monetary developments, conditions for the realisation of the monetary policy projection for 2004, adopted toward the end of 2003, and the report on international reserve management, and adopted a number of decisions within its sphere of competence. The meeting was also attended by the Minister of Finance Ivan Šuker.

The monetary policy projection for 2004 was based on the support of economic growth while maintaining low inflation, which would be possible with a ca. 10 percent increase in money supply. Such an increase should mainly result from "open market operations", i. e. the central bank's purchasing of government securities on the secondary market.

The key prerequisites for the realisation of such projection were a significantly reduced budget deficit and the provision of a larger share of funds for financing the deficit from domestic sources. It turned out, however, that the former prerequisite had not been met, while the meeting of the latter also seems uncertain. Therefore, the monetary authorities should reconsider their envisaged activities in the current year, given that the developments in the real sector point to its continuing slowdown over the last few months.

Minister Šuker briefed the CNB Council on the budget liabilities that existed at the time when the new Government took power as well as the current year's liabilities, which have a limiting effect on reducing the budget deficit and future investments. He agreed with the opinions of the CNB Council members that a good co-operation and co-ordination of further monetary and fiscal policy measures was extremely important under the current circumstances. It was therefore agreed that the executives of both the central bank and the Ministry of Finance should meet as early as next week in order to review in detail the government financing account for 2004. This will provide a basis for a more specific monetary projection and monetary instruments development for the current year.

At end-2003, international reserves stood at USD 8.19 billion, USD 2.3 billion above the level at the end of 2002. This was the highest annual growth so far, but it also included the effect of a further USD depreciation during the last year. By managing these reserves the central bank obtained an average 2.58 and 1.40 percent yields on its euro and US dollar portfolios, respectively. Given that in the first half of 2003, the Fed's benchmark rate declined from 1.25 percent to 1.0 percent, and the ECB's interest rate charged on two-week loans decreased from 2.75 to 2.0 percent, it can be concluded that in the environment of low interest rates in the world the Croatian National Bank successfully followed the principles of security, liquidity and profitable investment of funds which it manages.

The CNB Council approved the nominations of Ms. Suzana Sučić as chairwoman of the Management Board of Gospodarsko-kreditna banka d.d. Zagreb and Ms. Radojka Olić as member of the Management Board of Hypo Alpe-Adria Bank d.d. Zagreb.