A little more liquidity for Croatia’s banks.
After many years, the state will for the first time appear at the Croatian money market. The Ministry of Finance says it will offer to banks and other market participants between 700 and 800 million kuna. That is the proof that the budget is currently in a very good position as far as the influx of cash is concerned, so the surplus from the state treasury will be borrowed to the banks, reports Vecernji List on September 9, 2015.
However, the interest which will be earned in this transaction for the state could be only symbolic. For example, in August the average interest rate achieved in the money market was 0.99 percent. The participants in the money market offered about 3.4 billion kuna, demand was about two billion kuna, and agreements were reached for 700 million kuna in loans. On the money market, only the short-term loans are usually contracted, and the state, if it finds a “buyer” for its offer, could expect for a one-month loan to receive an annual interest rate of 1.55 percent.
The money market serves to enable lending between state, banks, central bank, investment and pension funds and insurance companies, and this year the average interest rate fell below one percent, due to the fact that the money supply is several times greater than demand.
Until the beginning of the economic crisis in 2007, the average interest rate ranged between 2 and 7 percent, while in 2008 there were months when high demand and modest supply elevated the interest rate over 10 percent. The appearance of the state in the money market will have a symbolic financial impact, but the government wants to show that it has reduced the need for short-term loans and that the treasury is raising revenue better than expected.
In the first eight months of the year, tax revenues were 3.2 billion kuna larger than last year, and the good inflows in the treasury have continued in September as well.