At its Wednesday meeting chaired by Governor Dr Željko Rohatinski, the Council of the Croatian National Bank reviewed economic and monetary developments in the previous quarter and adopted monetary policy projection and the central bank's financial plan for 2004. The Council also adopted a number of decisions acting in accordance with its authority.

The Council's monetary policy review for the next year was based on the CNB's main goal - maintaining price and exchange rate stability, while taking account of the overall economic policy objectives. In this connection, special emphasis was laid on further reducing the balance of payments deficit and slowing down the external borrowing. It is worth noting that the monetary policy framework for the next year has been set up in a time of uncertainty as to what will be the new government's fiscal policy in 2004, which will significantly influence the monetary policy room for maneuver.

The current estimates suggest that in the following year money supply and bank loans could grow by approximately 10 percent and 14 percent respectively. According to the CNB Council, this corresponds with the planned economic growth of around 4%, with the inflation kept below 2.5 percent. In 2004, the central bank intends to give up some of its current monetary policy measures, e.g. the compulsory purchase of CNB bills for banks whose placement growth exceeds the prescribed limit and the use of voluntary foreign exchange CNB bills, while auctions of the kuna CNB bills will be held only exceptionally. The currency issue through the purchase of foreign exchange will be reduced significantly: according to the current estimates, the net purchase of foreign exchange for international reserve requirements in the accounts held with the central bank will amount to about 100 US dollars. The use of open-market operations is expected to begin in the second half of 2004.

While the unified reserve requirement rate of 19 percent remained unchanged by the new decision on reserve requirements adopted at this session, the part of the reserve requirements allocated to special accounts with the Croatian National Bank will be increased. The foreign exchange parts of the reserve requirements calculated on foreign exchange sources of funds and on foreign exchange deposits of persons in a special relationship with the bank will be allocated at the rate of 100 percent. For the remaining foreign exchange part of the reserve requirements and the entire kuna part thereof the minimum allocation to the special accounts held with the central bank will be increased from the current 40 percent to 60 percent of the calculated reserve requirements. The purpose of these amendments is to discourage bank borrowing abroad in order to increase bank placements in the country on the basis of foreign sources of funds and the use of the foreign exchange part of reserve requirements as a collateral for the received loans, as well as to reduce significant daily oscillations in the balance of the reserves kept in banks' accounts with the CNB.

Pursuant to the amendment to the Decision on the Terms and Conditions for Granting Short-Term Loans on the Basis of Pledged Securities, the period for using Lombard loans has been reduced from 15 to 5 days in a month. As a result of an amendment to the Decision on the Interest Rates and Remunerations of the Croatian National Bank, the remuneration paid by the central bank on the allocated foreign exchange part of the reserve requirements will amount to 75 percent of the US Federal Funds Target Rate for the funds allocated in US dollars and 75 percent of the ECB Minimum Bid Refinance Rate for the funds allocated in euros. In both cases the rate in effect on the day of allocation will apply.