Recent monetary and economic developments and the analysis of the lending and interest policy of Croatian banks in 1997 were main topics discussed by the Council of the Croatian National Bank, chaired by governor dr. Marko Škreb, at its regular monthly meeting held on Wednesday, March 4.

Developments in the level of prices in February - compared to the previous month, retail prices grew by 0.4 percent and the cost of living by 0.7 percent, while pruducer prices fell by 0.1 percent in the same period - have confirmed estimations that the introduction of the value added tax would cause a one-shot shift in prices, which is to be followed by the stabilization of price movements. This huge change in the tax system caused no significant disturbances in the overall liquidity. According to available indicators, VAT has had a very positive impact on the regular collection of budget revenues. Therefore, currently there is no need for short-term central bank borrowing to the government budget, but the Ministry of Finance and the central bank should coordinate flows of money on a continuous basis for the purpose of maintaining the stability of prices and the exchange rate.

For the time being, changes in the monetary policy are not required. It is true that bank lending continued its expansion also at the beginning of the year - in January it increased by 700 million kuna -, but it still grew at a slower pace than in 1997. In January, the average lending rate on kuna loans went up by 0.6 percent to about 14.7 percent, while the average interest rate on kuna deposits increased by 0.3 percent reaching the level of 4.67 percent. Liquidity of the banking system proves to be satisfactory - at the end of February banks kept about 946 million kuna in CNB bills, which is more than in January. During the past month, the Croatian National Bank did not intervene in the foreign exchange market and the exchange rate of kuna remained stable.

Members of the Council were briefed on the first results of the research comprising 55 Croatian banks. The research was conducted for the purpose of obtaining a more complete insight in the lending and interest rate policy of these banks, in their organization, and in order to collect data on the proper assesment of risk inherent to certain projects, of risk related to borrowers, as well as on other indicators of sound and stable banking business. This research will provide a basis for the selection of measures to be used by the central bank in order to enhance further growth and stability of the banking system, and to make it well equipped for growing competition and new challenges of modern financial developments.

Answering the request submitted by the Supervisory Board of Dubrovaeka banka d.d., the Council of the CNB concluded that Dario Kauria, the candidate nominated for Chairman of the Management Board of this bank, meets all the prescribed criteria and agreed on his nomination. The Council also agreed on the nomination of Ms. Gordana Zrinšaak for Chairman of the Management Board of Centar banka d.d., as well as on nominations of Ms. Ljiljana Podhraški and Ms. Ružica Va?ia for Members of the Management Board of the same bank.

The Council of the CNB will continue performing its tasks without the presence of three members - Mr. Marin Kružieevia, Mr. Borislav Škegro and Mr. Branko Vukmir - whose term of office of six years has expired. During the aforementioned period, they contributed significantly to the performance of the central monetary institution of Croatia with their conscientious and devoted work.