Central Bank Struggling to Prevent Appreciation of Kuna

Total Croatia News

ZAGREB, January 31 – Croatian National Bank (HNB) Governor Boris Vujčić said on Tuesday that the national currency, the kuna, was currently under heavy appreciation pressure and that the central bank would have to continue buying euros from commercial banks to prevent its further strengthening.

“The fact is that we are currently facing extremely strong appreciation pressures, those that are making the kuna stronger. Last year, the Croatian National Bank purchased two billion euros to prevent the kuna from strengthening, and we purchased 400 million euros this January alone,” Vujčić told reporters on the margins of the 26th conference of the Lider Club of Exporters in Zagreb where he presented the Euro Adoption Strategy.

Because right now Croatia is experiencing a trade surplus, meaning that it is exporting more than it is importing, the HNB will have to continue buying considerable amounts of euros from commercial banks to prevent the kuna from getting stronger, he added.

Asked about interest rates on loans, Vujčić said that they were at a record low and there was no considerable risk of their increasing this year. However, he warned that this was bound to happen at one point, but stressed that Croatia had the necessary mechanisms in place to delay such increase for a longer period of time.

“At this point, given that the European Central Bank has been implementing its quantitative easing programme since September and will not be increasing the interest rates, we can say that regardless of the fact that the US central bank has started to the increase interest rates, there is no considerable risk of the interest rates increasing this year,” the HNB governor said.

The moment the interest rates start to increase, the good thing for Croatia is that it can set off their increase by lowering risk premiums because of the good macroeconomic indicators, Vujčić said and added: “If we do that, we will not feel an increase in interest rates, and if we don’t, we will feel it at one point.”

Asked by the press if the increase could be drastic, Vujčić said that, once interest rates started to increase, all central banks tried to ensure a gradual increase in order to prevent an interest rate shock.


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