At its meeting today, the Council of the Croatian National Bank reviewed recent economic and monetary developments and adopted the annual report on CNB operations and financial results in 2003. It also adopted a number of decisions within its sphere of competence.
The last year's retail price growth of 1.5% indicates that the Croatian central bank was again successful in carrying out its main tasks. Core inflation was as low as 0.7%, exchange rate remained broadly stable and international reserves rose from USD 5.88bn to USD 8.19bn (including the effect of exchange rate fluctuations). In addition, the banking system was stable and displayed strong profitability with a capital adequacy ratio of 15.7% and the Return on Average Equity reaching 15.6%.

Besides maintaining macroeconomic stability, the Croatian National Bank was focused on slowing down the growth of bank placements and, consequently, on restraining the growth of foreign debt. As a result of the CNB measures, the growth rate of bank lending fell from 33.6% in 2002 to 11.3% in 2003. In addition, the growth in total assets made available to domestic borrowers decreased from 25.7% in 2002 to 18.0% in 2003. This difference includes the effect of leasing and direct foreign borrowing, which lie outside the sphere of the central bank's influence over foreign debt movements.

The last year's financial results of the central bank were again influenced by large fluctuations in the exchange rates of major currencies. Thus, the US dollar fell from 7.14 kuna at end-2002 to 6.11 kuna at end-2003, while the euro appreciated from HRK 7.44 to HRK 7. (In accordance with the currency structure of the Croatian imports and foreign debt, two thirds of international reserves are maintained in euros and one third in US dollars). As a result, the unrealised foreign exchange translation losses and unrealised foreign exchange translation gains stood at around HRK 9.80bn and HRK 9.18bn respectively, with an operating deficit reaching HRK 342m, half as much as in the previous year. However, it should be noted that, without the exchange differences, the operating surplus of the CNB would have amounted to HRK 278m in 2003.

In the first quarter of 2004, industrial production grew by 3.5% year-on-year and the strong activity in construction continued (its growth rate in February was 14.4%). In March, consumer prices rose by 1.4% year-on-year, the same as core inflation. Although the data for April are still not available, it is expected that they will partially include the increase in the prices of refined petroleum products. According to the CNB estimates, the direct and indirect consequences of this price growth will be an increase in the annual inflation rate to ca. 2.5% in May. However, in the following months, prices are expected to slow down, which will reduce the inflation rate.

After a longer period of time, bank loans to enterprises grew faster than loans to households. In March, bank credit rates generally declined, while interest rates on kuna sources of funds went up. As a result, the difference between bank credit and deposit rates was also reduced. Owing to four foreign exchange interventions of the CNB, the banking system liquidity improved in April and money market interest rates fell significantly. Thus, the weighted monthly interest rate on overnight loans was 3.24% in April.
The CNB Council agreed that the commemorative 10-kuna banknote bearing the date of 30 May 2004, which was issued to celebrate the 10th anniversary of the national currency, should be put in circulation on 24 May 2004.