Speaking in an interview with the HRT public broadcaster on Sunday evening, Vujčić said there was no room for panic that interest rates would rise abruptly, and with the loan payments, for citizens who have long-term loans with variable interest rates.
He noted that the interest rates had been at record low levels since 2015 and that throughout that time the HNB was warning that at one point they would get back to normal and start increasing.
He said that this approach and the HNB’s recommendation to the banks to offer fixed interest rates to citizens had led to the share of the variable interest rate in loans decreasing from 90 to the present 38 percent. He added that the majority of citizens have a fixed interest rate for the first five to ten years of loan repayment, after which the interest rate becomes variable.
“This means that in normal scenarios no one will feel any significant rise in interest rates in the short term,” Vujčić said.
Should the inflation rate remain high for a longer period of time, interest rates might grow at a greater speed, he said, illustrating this with an example: “If your loan matures in 20 years or more, then a one percentage point rise in the interest rate might increase your loan installment by approximately 9.5 percent, provided you have no protection such as a fixed interest rate.”
Vujčić said it was not possible to make a general recommendation to citizens with long-term loans and variable interest rates to apply for a switch to loans with fixed interest rates. He, however, recalled that in 2017 the HNB had recommended to the banks to make this possible for those who make such a request.
The HNB governor said he did not expect the rise in energy prices to have the same inflationary impact it had this year.
“Energy contributed to half of the total rise in prices, which is absolutely the greatest contribution to inflation. Looking at the markets, next year energy prices are expected to stabilize or even start falling slightly,” he said.
He, however, warned there was still considerable uncertainty because if prices continued to rise, that would definitely put additional pressure on inflation.
“However, we cannot expect, in any reasonable scenario, the rise that we had this year when prices rebounded from the very low levels in the pandemic year 2020 to normal levels. I do not expect anything similar to the inflationary pressure we saw this year, but energy prices are definitely important for the overall inflation trend,” Vujčić said.
The HNB expects inflation to pick up to 2.3 percent this year before slowing to 2.1 percent in 2022.
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