Tuesday, 24 January 2023

Valdis Dombrovskis: Croatian Eurozone Entry Happened at Right Time

January the 24th, 2023 - Despite ongoing inflationary pressures, Valdis Dombrovskis, a Latvian politician who has served as the European Commissioner for Trade since 2020, has said Croatian Eurozone entry has occurred at the right time.

As Ana Blaskovic/Poslovni Dnevnik writes, the annual inflation rate in the Republic of Croatia more than likely peaked back in December 2022 and could continue to fall due to lower food and energy prices, Croatian National Bank (CNB) Governor Boris Vujcic said on Monday.

"Here in Croatia, the inflation trend is very similar to that in the rest of the Eurozone, but it is higher, which is in line with Eastern European countries where GDP per capita is lower, so food and energy prices have a greater effect on people," Vujcic told reporters at a seminar ahead of a government and CNB conference called ''Croatia – The 20th member state of the Eurozone".

When epeaking about Croatian Eurozone entry, Vujcic said that "we should wait for official data, but we should also realise that the prices of energy and food in the first two weeks of January are lower than before on an annual basis,'' however, he did make sure to note that the CNB doesn't actually monitor the prices of (utility) services for small businesses.

When asked whether, now that inflation is slowing down, the European Central Bank (ECB) will continue to raise interest rates with the same intensity, from 50 basis points, Vujcic said that he wouldn't like to speculate on it.

"Warmer weather than usual across Europe this winter has reduced the risk of recession in the European Union and here in the Eurozone, two months ago the main risk was possible reductions in energy sources. Now it's certain that we aren't going to have a recession, although there may be some issues which are shallow and short-lived in some countries,'' stated the governor, noting that in a calmer environment it is easier to raise interest rates.

"Although the headline inflation rate has fallen, core inflation across the Eurozone has risen. Current forecasts call for a further increase in interest rates," he said. Valdis Dombrovskis also pointed out that Croatian Eurozone entry happened at the right time regardless of inflation.

He explained that the economic benefits of Croatian Eurozone entry enable the country to borrow more cheaply, it brings about price transparency, which is especially important in tourist-oriented countries like Croatia. With the kuna tied to the euro, monetary policy in Croatia followed the monetary policy of the ECB, he believes, but did not benefit from formal membership in the Eurozone back when the kuna was legal tender.

"Because of high inflation, things are a bit more difficult at this moment in time, but the government is working on measures to suppress those issues. From a historical perspective, inflation was low when Latvia joined the Eurozone, and even then the opposition was against it precisely because of low inflation. I think Croatia's timing was good regardless," he assured. Referring to inflation across the Eurozone, he pointed out that inflation has spread throughout the Eurozone's economy and it will take time for it to calm down despite the drop in energy prices.

"The euro is a young but extremely well-established currency, the second strongest reserve global currency. Its use is expanding and that is going to continue, the euro will play a role in the development of the European Union's economy and that of all of Europe," concluded Dombrovskis.

The poll conducted by the EC in Croatia after the changeover to the euro shows that the vast majority of Croatia's residents believe that the changeover went smoothly and efficiently. As many as 88 percent believe that they are well informed about the euro, 61 percent that the transition was smooth and efficient, 81 percent had no problems when exchanging their kuna banknotes and coins into euros or withdrawing cash from banks during the first week of the use of the new currency.

For more, make sure to check out our dedicated news section.

Sunday, 20 November 2022

Is It Time for The Croatian National Bank to React to Inflation?

November the 20th, 2022 - Is it time the Croatian National Bank (CNB) reacted to the ongoing inflationary pressures we're all continuing to face? What could happen as costs spiral over the coming months?

As Poslovni Dnevnik/Ana Blaskovic writes, October 2022's inflation of 13.2 percent at the annual level exceeded expectations and broke records yet again. Economists continue to struggle with predictions, people are increasingly angry because they can afford less and less, and the window for companies to elegantly pass on the impact of costs to customers is constantly narrowing.

That said, long-term inflation, which has remained rather stubbornly in double digits for the past six months, has begun to erode demand and slow down the flywheel. Cumulatively, inflation increased by 10.2% in a mere 10 months, and after a slight summer break, it has been increasing on a monthly basis for two months now. In October, prices increased (on average) by 1.3% compared to September.

Clothing and footwear took the lead by 6.9%, followed by the category that includes housing, water, electricity, gas and other fuels by 2.8%, while food and non-alcoholic beverages rose in price by 1 percent. October is the first month this year in which one category stuck out like a sore thumb with a drop in prices – the segment of recreation and culture (-0.8%).

Although the reduction in prices at least in one area may seem like a bit of good news at first glance, it is a concrete indication that the standard has been undermined to the extent that non-essential consumption has begun being firmly squeezed out.

"Despite the Croatian Government's measures to cap prices in certain product categories, inflation is evidently spilling over to other product groups and is beginning to exert pressure on the demand side as well. This is partly a consequence of the previous increase in costs (which is especially visible in the continued strong growth of producer prices), so with still solid demand, consumer prices in other categories are also rising," RBA analysts point out.

The governor of the Croatian National Bank, Boris Vujcic, recently said that the latest data shows that the spread of inflation started to decrease for the first time in October. He said that this is good news and that it may indicate that we're "closer to the peak of inflation".

The engine of annual inflation (so far) has been the acceleration of prices in categories that are driven by cost shocks, although other categories are also suffering. Looking from the perspective of the month of October alone, food has risen in price by almost a fifth in a year, restaurants and hotels need people to allocate 17.8% more, while the costs of housing, water, electricity, gas and other fuels are 16.1 percent higher. The category of furniture, home equipment and regular maintenance has seen an average price increase of 15.8 percent. Transportation is also 11.5 percent more expensive today.

"It is slowly becoming more and more clear that the European Central Bank is lagging behind the curve of expectations. Here in Croatian conditions, we also have the element of introducing the euro, which will release enormous liquidity with inflationary potential. Therefore, it would be good for the Croatian National Bank to resort to the macroprudential measures it has as an instrument at its disposal, such as limiting the dynamics of lending, setting stricter requirements for collaterals, and the like," explained Zeljko Lovrincevic from the Institute of Economics.

Most recently when it comes to inflation, Lovrincevic sees two phenomena. "It's important to read that inflation has accelerated significantly since we met the nominal criteria for the introduction of the euro, and it keeps on surprising us. In other words, today we wouldn't manage to meet the inflation condition even with exceptions (countries that are excluded from the calculation for certain reasons) for its introduction,'' he stated.

"The figures show that what we're seeing is very widespread inflation, spanning all categories. If initially it came from energy sources, now inflation is radically spreading to all other groups, with food and non-alcoholic beverages taking the lead. In short, today inflation is fed by demand, which enters the zone of responsibility of central banks,'' explained Lovrincevic.

The months-long debate about inflation raises the question of where it comes from and, consequently, who is responsible for it all. Central banks, including the Croatian National Bank are responsible for ensuring things like price stability, but the economic profession has emphasised the limited capacity of monetary policy when inflationary pressures come from the cost side, in this case the explosion of energy prices across Europe.

People and companies are most interested in what will happen with inflation in the coming months. Roughly, a third of inflation is made up of administratively determined energy and utility prices, that part will directly depend on the government's decisions. The freezing of certain products, which "polished" the inflation statistics, resulted in shortages, but also compensations in the prices of other products.

"The real standard indicates that the burden of rising prices has been transferred to labour. The state will protect itself through the growth of the tax base, and employers through the growth of production and trade margins," the analyst points out.

The latest polls reflect exactly these trends; consumer optimism lags significantly behind that of the corporate sector, indicating the transfer of costs to the end customer. For this reason, this year in the triangle 'labour-capital-state', which depicts the contribution of individual components to GDP, Croatia will have the largest deviation in the share of labour of 2.5 percentage points (44.5 percent instead of the previous 47 percent), whereby the difference to be divided by the state and employers, concluded Lovrincevic.

Over more recent months, RBA expects a continuation of double-digit inflation with a slight tendency to decrease, 10.6% at the level of the whole of 2022, i.e. above 6% in the next year. They warn of the likely continuation of increased energy prices due to the war in Ukraine, but also of the necessary delimitation of administrative prices, which would bring a new inflationary blow with it.

For more, make sure to check out our dedicated lifestyle section.

Sunday, 16 October 2022

CNB Governor Boris Vujcic: Croatia Still to Have a Very Good Year

October 16, 2022 - After two and a half years of exceptional challenges due to the pandemic, the world is facing new crises. The road ahead will probably be just as difficult, if not more, Fund Director Kristalina Georgieva said at the end of the annual meeting of the IMF and the World Bank. The IMF's strategic committee called on Russia to stop its invasion of Ukraine. The Governor of the Croatian National Bank, Boris Vujcic, commented on the forecast for the Croatian economy.

As HRT reports, the war worsened the economic crisis, slowed growth, and created inflation and energy and food insecurity. The fight against inflation and protecting the most vulnerable categories of citizens remains the main priority. This was the conclusion of financial experts.

CNB Governor Boris Vujcic commented on the forecasts for the global and Croatian economy for HTV in Washington.

"It is obvious that the economy, both globally and European, and now according to the latest high-frequency data, the Croatian economy has started to slow down. At the global level, this slowdown has been visible for some time in Europe as well; in Croatia, it is very recent, and we have practically started seeing it from September onwards. Croatia will still have a very good year. We expect growth from 5.5 percent to 5.8 percent, which is very good after 10.2 percent last year. However, next year we expect that this slowdown that we are seeing now will be fully reflected in a much lower growth rate where the economy could grow by only one percent", he said.

IMF estimates

IMF estimates are that the economy of the Eurozone could only grow by half a percent and that some countries, primarily our main foreign trade partners such as Germany and Italy, would be in recession, which would mean having negative growth rates. As for Croatia, the primary projection is that we will have a low growth rate and not a recession. However, when the practical prospects are continuously deteriorating in this situation, he said it would not be surprising if we also entered at least a technical recession, meaning two consecutive quarters of negative growth.

"Of course, inflation is the biggest problem everywhere; central banks have to tighten their monetary policies, which means raising interest rates, but also to reduce their balance sheets, which have grown a lot since the great financial crisis and represent another, I usually call it fertile ground for the growth of the inflation. Central banks will continue to do so. As of next year, we will be a member of the eurozone, so this is primarily a concern of the European Central Bank, where I will co-create that policy. And as for the governments, this winter, they are mainly limiting the prices of electricity, thermal energy, and natural gas. Next year, we will see how things will develop, he said.

Entry into the eurozone

"Everyone congratulates us; they think it is very good for Croatia and will help Croatia significantly in this crisis. And we can already see that. We see that Croatia is doing better in this crisis than other EU countries that are not on the way to become members of the eurozone or existing members. Our rating is growing; we don't have to spend reserves on intervention in the foreign exchange market, which we had to do in the spring of 2020." He concluded that our interest rates are significantly lower.

For more, make sure to check out our dedicated Politics section.

Tuesday, 7 June 2022

Central Bank Governor Says 2022 Inflation Could Be 9%

ZAGREB, 7 June 2022 - Inflation in 2022 could reach 9%, which is higher than the current IMF estimate of 6%, Croatian National Bank (HNB) Governor Boris Vujčić said at the conference "Eurotransformation of Croatia", organised by Motus Media Group in Zagreb on Tuesday.

Inflationary pressure has been growing by the month, notably food prices, and the world, including Croatia, is faced with the first major wave of inflationary pressure after many years, Vujčić said.

"The invasion of Ukraine and sanctions against Russia have worsened global expectations of growth and inflation," he said, noting, however, that price growth had been recorded also before the war in Ukraine.

The upward revision of inflation projections is largely due to higher prices of oil and raw materials, which is why inflationary pressure continues to be strong, he said.

In April, the HNB revised this year's average inflation rate forecast to 5.2% after 2.6% in 2021.

Vujčić believes that Croatia's GDP growth rate this year will exceed the 2.7% forecast by the IMF. He also expects GDP growth to be strong in the second quarter of this year as well.

Most central banks in the countries outside the euro area started tightening their monetary policies already in 2021, but the HNB did not do it because Croatia is on the road to euro area membership, he said.

"The price of borrowing for Croatia has grown much less than in the countries that are not in the euro area," Vujčić said, adding that the spillover effect of the stricter conditions of financing on market interest rates was particularly evident in Hungary and Poland.

Prices of commodity imports are growing faster than prices of commodity exports and trade conditions have been deteriorating, which increases the foreign trade deficit, he said.

"Real economic activity in Croatia is nonetheless above the pre-crisis level, with growth concentrated in the services sector," Vujčić said, noting that positive trends in the national tourism sector could compensate for the negative impact of the more expensive energy products.

Personal consumption is expected to increase in Croatia in the coming period, he said, noting that euro introduction would not lead to significant price increases because the level of prices in Croatia is already relatively high, especially for food and telecommunication services.

Marić: Negative effects of euro introduction largely non-recurring 

Finance Minister Zdravko Marić said that the negative effects of euro introduction would be largely non-recurring, adding that in order to avoid most of them, one should communicate the process to citizens as well as possible.

The current inflation has nothing to do with Croatia's accession to the euro area, Marić said, repeating that the conversion exchange rate would probably be at the level set upon entry to the European Exchange Rate Mechanism II, but that it was possible it could be slightly different.

Marić said that he had talked to representatives of the retail, tobacco, and other sectors with regard to the rounding off of prices due to euro introduction, noting that cigarette prices in the European market had been rounded to the nearest 10 and not the euro cent.

"We will be monitoring the retail sector, notably food prices," he said, adding that prices in the hospitality sector and tourism would be closely followed as well.

For more, check out our politics section.

Thursday, 19 May 2022

HNB Governor: Switching To Euro To Strengthen Resilience To Crises

ZAGREB, 19 May 2022 - Croatian National Bank (HNB) Governor Boris Vujčić said on Thursday that the introduction of the euro in the country as sole legal tender would strengthen the resilience to crisis, bring about better terms and conditions for borrowing, boost competitiveness and improve cost-efficiency.

The highest share of exchange risk and foreign currency lending risk will be eliminated, and banks will have direct access to the euro-area and the eurosystem's monetary operations, all of which will make their performance easier, Vujčić said at the 25th expert conference on the financial market, organised in Opatija by the Croatian Banking Association (HUB).

He recalled that all the preconditions for the changeover to the euro on 1 January 2023 had been met and that the Council of the EU was expected to make a formal decision on Croatia's admission to the euro area.

Croatia expects the Council to give a nod in July.

The country will start minting euro coins in the second half of 2022.

Vujčić said that all the segments of society would be ready for the euro changeover, and that preparations were proceeding as planned.

The governor is confident that Croatia will meet all the convergence criteria, including price stability, sound public finances, sustainable exchange-rate stability, fiscal criteria and the criterion concerning long-term interest rates.

As for a one-off price rise during the changeover, consumer prices are likely to go up by 0.2 percentage points in the first year of the euro adoption.

For more, check out our politics section.

Friday, 6 May 2022

Croatian Euro Printing to Begin on Large Scale in July 2022

May the 6th, 2022 - Croatian euro printing is set to begin on an enormous scale come this July, as Croatia makes the very last preparations to send the kuna to the history books and finally join the Eurozone next year.

As Poslovni Dnevnik/Jadranka Dozan writes, the National Council for the Introduction of the Euro has once again confirmed that all of the current preparatory steps are in line with the plan to switch to the bloc's single currency on the first day of 2023. Recently, the Croatian National Bank (CNB) finally presented the design of the national side of the one euro coin, which was selected in a repeated tender.

The CNB has already begun preparations for large-scale Croatian euro printing, and according to Governor Boris Vujcic, mass production should start during the month of July. Before that, one million kuna's worth of test coins will be made by the middle of next month, the central bank says.

By this summer, the ongoing tender for the services of creating and implementing an informative national campaign to replace the kuna with the euro will be concluded. The estimated value of this public procurement stands at a massive 27 million kuna, and half of the campaign costs are being borne by the European Commission (EC).

Currently, no obstacles are being noticed

All in all, in recapitulating the course of preparatory activities from the 15th session of the Council, it was said that everything is going according to the planned deadlines. The Prime Minister recalled that the Croatian Government adopted a report on the action plan back in late March, which confirmed that all reform commitments made upon entering the European Exchange Rate Mechanism ERM II (in July 2020) had now been met by Croatia.

Croatian euro printing aside, the competent ministers responsible for individual areas of measures from the action plan briefly reported on the activities carried out in the area of ​​improving the business environment, managing state-owned enterprises, strengthening the bankruptcy framework and the framework for preventing money laundering.

The new Minister of Economy Davor Filipovic emphasised the administrative relief that will be felt by the domestic economy with an estimated effect of 686 million kuna, as well as 531 million kuna of reduced non-tax and parafiscal benefits. From the judicial department, they primarily emphasised the changes in the bankruptcy law and the improved framework for the work of bankruptcy trustees.

Increased inflation rates, which according to recently updated government projections rose to a concerning 7.8 percent of the annual average this year, do not pose a problem or obstacle in the context of the convergence criteria for the euro, both the government and the CNB are strongly convinced.

Regarding the inflation criterion (up to 1.5 percentage points above the average of the three best performing countries), Governor Boris Vujcic explained that, for a start, this criterion doesn't refer explicitly to the (three) lowest inflation rates but instead to the best performance.

Imported price pressures

The governor reiterated that the greatest advantage of the euro is shown during financial and other such crises, such as the recent global coronavirus pandemic or the current crisis being caused by the economic consequences of the war in Europe, more precisely in Ukraine.

This, he said, is especially true for small and open economies such as that of Croatia, and the country's lag over the past decade is the result of a stronger decline in the crisis and a longer recovery period, partly due to Croatia's then inability to rely on the ECB's monetary policy. Although inflationary pressures will obviously last longer than expected before the escalation of the war in Ukraine, and imported inflationary pressures may spill over into Croatian prices, the governor underlined that this should not be linked to the introduction of the euro.

People are often afraid of prices being rounded up upon a country's entry to the Eurozone, but now these effects don't really seem crucial. In the seven countries that last entered the Eurozone, prices which were a mere 0.2 to 0.4 percentage points higher were recorded.

For more, check out our politics section.

Wednesday, 4 May 2022

FinMin, HNB Governor Believe Inflation Criterion for Euro Area Entry to be Met

ZAGREB, 4 May 2022 - Finance Minister Zdravko Marić and Croatian National Bank (HNB) Governor Boris Vujčić on Wednesday expressed optimism regarding the fulfilment of the inflation criterion for euro area entry, with Vujčić saying that it would be unusual for Croatia to be asked to have an inflation rate below the current euro area rate.

Speaking at the 15th session of the National Council for the introduction of the euro as legal tender in Croatia, Marić recalled that a few days ago the government sent a convergence programme to Brussels and now it expected an assessment and a report to be published by the European Central Bank and the European Commission, to be followed by the checking of compliance with the Maastricht criteria, with the focus being mostly on inflation.

Marić said that the average inflation in Croatia for the first three months of 2022 was 6.3%, which, he said, was the euro area average and slightly below the EU average.

The Maastricht criteria refer to exchange rate stability, price stability, interest rate stability and two important indicators related to public finance - budget deficit and public debt.

Under the Maastricht criteria, the assessment refers to the inflation rate in the last 12 months, but not in relation to the general average but to the average of three countries with the lowest inflation rates. That means that Croatia should have an inflation rate that is a maximum 1.5 percentage points above the average inflation rate in the three EU countries with the lowest inflation, Marić said.

He added that the EC and the ECB have the right to exclude some of the countries from the calculation at their own discretion, which, he said, happened in 2014.

Marić said that without wishing to prejudge anything, he believed that European partners fully understood that the increased inflation in Croatia did not in any way differ from the situation in the EU.

"In anticipation of data on inflation in April.... we firmly believe that Croatia will meet that remaining criterion," he said.

The target date for Croatia's entry to the euro area is 1 January 2023.

Vujčić: Importance of euro area membership in times of crisis  

HNB Governor Vujčić said that the reference value a country must comply with to join the euro area had so far never been lower than the average inflation in the euro area.

"If that is so, Croatia too should be able to meet the criterion because it would be a little odd to demand that it should have a lower inflation rate than the euro area which it is joining," he said.

He underlined the importance of euro area membership in times of crisis, noting that crises were easier to overcome and the consequences were significantly fewer for euro area members.

Croatia's lagging behind in terms of growth in the last decade is due to the fact that in crises its decline was much larger than in other countries, he said, noting like Marić, that euro introduction would not cause additional inflationary pressure.

Asked where after the introduction of the euro, kuna coins would be stored, Vujčić said that a solution would be found in cooperation with the Defence Ministry, to be announced after it was determined how they would be stored.

Vujčić also reported that trial euro coins with the national sides that had been approved had already been made and that after a decision on Croatia's euro entry in July, full production should be launched.

First increase in interest rates by ECB possibly in July already

Given that the US Fed Bank has already started a cycle of increasing interest rates, reporters asked Vujčić if the ECB planned the same move, to which he said that last year already he had announced that we could expect a gradual increase in interest rates in 2022 and that the effects were already visible on the bond markets.

When it comes to the ECB, it first plans to halt the programme of quantitative easing by the third quarter of this year, after which interest rates will increase. "We don't know when that will be, however, it is possible that the first increase in interest rates by the ECB could be as early as July," Vujčić said.

He explained that a good part of what will occur with increased interest rates of central banks has already impacted the market, which anticipated it. "When something is announced, financial markets don't wait for that to occur but immediately incorporate it in the price," Vujčić said, adding that it was usual in periods of growing inflation for central banks to respond by increasing interest rates.

In mid-April, the Ministry of Finance released euro bonds on the international capital market with a total nominal value of €1.25 billion, a maturity of 2032, an annual coupon interest rate of 2.875% and a real yield of 2.975%.

If they were to be issued today, the reference interest rate would be 33 base points higher, which means they would be 0.33% more expensive, hence about €4 million will be saved on interest each year, Minister Marić underlined to illustrate the volatility of the market, due also to the war in Ukraine.

PM: Croatia's economy most euroised of all EU economies

During the meeting of the National Council, chaired by Prime Minister Andrej Plenković, the PM presented the design of the national side of the €1 coin and a final bill on euro introduction, to be sent to the parliament on Thursday for second reading.

At the meeting, reports were submitted on the progress made in implementing activities related to introducing the euro.

Plenković said that euro introduction and accession to the Schengen Area were two strategic goals for deeper integration with the EU.

He said that Croatian citizens and the economy would benefit from membership in the euro area, underscoring that Croatia's economy was the most euroised of EU economies outside the euro area.

Euro deposits account for 76% of total savings and term bank deposits, 47% of kuna loans are pegged to the euro while countries of the euro area account for 53% of commodity exports and 59% of commodity imports, he said.

Plenković recalled that last week the government said that it foresees a GDP growth of 3% this year and a budget deficit of 2.8% of GDP, to fall to 1.6% in 2023 and 1.2% in 2024. At the same time, public debt should also be reduced to 76.2% this year, 71.7% in 2023, 68.9% in 2024 and 66.9% in 2025.

"All this has to be viewed in the context of changed circumstances and growing energy prices, which impacts all processes," said Plenković, recalling last week's estimate of a 7.8% inflation rate this year.

He stressed that nine measures in four areas had been met as part of the action plan to participate in the European Exchange Rate Mechanism II (ERM II). They are related to preventing money laundering, a more favourable business environment, improved management of state-owned companies and strengthening the bankruptcy framework.

We believe that this comprehensive approach will make it possible for all key and final decisions about Croatia's accession to the euro area to be made at the EU and euro area levels in June and July, said Plenković.

For more, make sure to check out our dedicated politics section.

Wednesday, 27 April 2022

Could Tomislav Coric Become Most Powerful Name in Banking Sector?

April the 27th, 2022 - Could Economy Minister Tomislav Coric become the most powerful name in the domestic banking sector?

As Poslovni Dnevnik/Ana Blaskovic writes, while Prime Minister Andrej Plenkovic is busy calculating with the government reshuffle, which has (once again) been eroded by varying scandals, there is speculation on the sidelines that Economy and Sustainable Development Minister Tomislav Coric could continue his career as the vice governor at the Croatian National Bank (CNB).

Since the return of Martina Drvar to the European Central Bank, the position of Vice Governor for Supervision has been open since the middle of last year. It's a proverbial "hot seat" in which a key person sits in order to supervise the legal operations of banks. In her hands lies the power to prescribe millions in fines to the most powerful players on the Croatian market, which is why, both directly and indirectly, she is often open to the barrage of pressures from the banking sector, especially when their profits are touched.

Damir Odak doesn't have adequate support

Although it has been mentioned that Damir Odak could return to the post, he allegedly lacks the support of those in power who resent him for being close to Governor Boris Vujcic. Unofficially, it can be heard in the parliamentary corridors that the seat is "reserved for Tomislav Coric" and that (for now) there are no other candidates being looked at. It's unclear at this moment in time whether it is possible to have a kind of rotation of vice-governor positions and in that case, Tomislav Coric might take over another department, and one of the current vice-governors would take over that role in supervision.

"At the moment, only Tomislav Coric is being mentioned, but there will probably be no official proposal before the prime minister announces the details of the reconstruction," it has been said among circles close to the parliamentary Committee on Finance and the Budget.

Regarding his possible departure to the CNB, Tomislav Coric briefly said that he is "without comment on all non-departmental topics". Therefore, Coric, a doctor of science and former assistant professor at the Department of Finance at the Faculty of Economics in Zagreb, doesn't seem as if he's rejecting this option.

Dissatisfaction within the CNB

The CNB is allegedly resisting all notions of Tomislav Coric, believing that this is a key function that requires exceptional knowledge of the banking system and the way in which it functions.

There has as yet been no official comment from the CNB on the alleged idea. Governor Boris Vujcic is a member of a Croatian delegation led by Finance Minister Zdravko Maric, who travelled to the International Monetary Fund's annual assembly in Washington last week. Unofficially, however, the choice didn't really please them much, especially since the return of Odak was expected.

"Within the CNB, the entrance of Tomislav Coric is being resisted. This is a key function that requires exceptional technical knowledge of the banking system, as well as of many domestic and European Union regulations. This is one of the most responsible technical positions in the entire country. It's problematic to recruit from the political sphere to an extremely demanding professional position,'' claimed a well-informed source.

The collapse of integrity

On the condition of anonymity, those who spoke about the matter commented that regardless of Tomislav Coric's indisputable educational qualifications, his appointment would be a firm step in undermining the integrity of an institution that should be totally independent of politics.

The last two rounds of appointments at the very top of the CNB's structure were politically coloured, with the key exception that Martina Drvar, as the undisputed expert, was the governor's choice back in 2018. To briefly recall, before the amendments to the law on the central bank, the governor chose his own closest associates.

"We're practically facing a situation in which the CNB Council is the majority politicised body, and that's the defeat of the independence of yet another of this country's institutions. In that sense, it's probably good that we do go ahead and introduce the euro (join the Eurozone) and that the ECB takes control of systemically important Croatian banks,'' concluded one of the aforementioned well-informed sources.

For more, make sure to check out our dedicated politics section.

Saturday, 22 January 2022

Boris Vujcic Reveals All Locations for Kuna-Euro Cash Exhange

January the 22nd, 2022 - Boris Vujcic has revealed all of the locations at which the Croatian kuna can be exchanged for the euro as the country edges closer to Eurozone entry.

As Poslovni Dnevnik writes, Prime Minister Andrej Plenkovic and CNB Governor Boris Vujcic addressed the public at a recent session of the Council for the Introduction of the Euro as the Official Currency, held at the National and University Library.

Plenkovic: There are many advantages for citizens

"Why is the introduction of the euro good? There are benefits for our citizens. Currency risks will disappear. The euro will bring with it a great impetus to the international exchange of goods and services,'' explained Plenkovic.

“Euro deposits account for more than 76 percent of total time and savings deposits with banks, and 50.3 percent of total bank placements are euro placements. We intend to highlight several fundamental principles of this process which are included in the bill. The first and most important thing is consumer protection, we must prevent any situations that would take advantage of the introduction of the euro to the detriment of consumers,'' added the Prime Minister.

"The intention is that in the beginning the prices will be expressed twice, both in kuna and in euros. Throughout the whole of 2023, after the introduction of the euro, prices will also remain highlighted in kuna. So, first we'll pay in kuna and see the prices in euros, and then we'll pay in euros, but we will also have the prices visible in kuna,'' he said.

After Plenkovic, CNB Governor Boris Vujcic spoke, HRT writes:

"The most important thing in the law is that it contains the principle according to which the existing contracts stating the reference to the kuna are still valid. We're removing any possibility of legal uncertainty during Croatia's changeover to the euro,'' he said.

"When it comes to the process of exchanging the kuna for the euro, consumer protection is important. Converting kuna into euros will be done by and in banks automatically and without any incurred costs,'' assured Boris Vujcic.

"As for deposits and loans, people don't need to worry, the conversion into euros will be done automatically on the day of the introduction of the euro in Croatia at a fixed conversion rate and without any cost. Agreements on all loans and deposits will continue to be valid,'' he added.

"As for interest rates, the rule is that fixed interest rates will remain fixed, and when it comes variable interest rates, if the variable parameter needs to be adjusted when introducing the euro due to rounding, this law stipulates how this adjustment will be made," Boris Vujcic said.

"The consumer must not be put in a worse position than they were in before"

"Again, the important principle is that the consumer cannot be in a worse position than they were in before. If there are any differences in the second decimal, it will be at the expense of the bank, not at the expense of people. When exchanging kuna cash, about 36 billion kuna is in circulation at the moment, it would be good to deposit as much of that money in banks as possible this year in order to logistically facilitate the conversion itself,'' noted the governor.

"Those who fail to do so will have a chance after that, for one year at Fina, in banks and at Croatian Post (Hrvatska posta) offices, and banknotes will be able to be exchanged forever at the CNB, and the same will be made possible for kuna coins for the next three years," concluded Boris Vujcic.

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Monday, 17 January 2022

Central Bank Governor: Citizens Hold Cash Amounting to HRK 36 Billion

ZAGREB, 17 Jan 2022- Croatian National Bank Governor Boris Vujčić said on Monday that inflation might be the most serious potential "cost" of introducing the euro, however, this year, that influence on the total inflation rate could be less than 10%, so he believes this isn't something to be overly bothered about.

Vujčić added that the rest of the inflation will be generated from entirely different sources, primarily the prices of energy. He expects that the first half of this year will see strong inflationary pressure whereas "deflating" is expected in the second half.

Vujčić said that the best prevention against prices increasing is competition, adding that state intervention is only justifiable where monopolies exist. In the months prior to and after introducing the euro, consumers have to avoid those who increase their prices and buy from those who don't, he said, believing that the best protection against price increases is showing prices in both kuna and euro.

With regard to losing monetary sovereignty once Croatia enters the euro area, Vujčić recalled that the central bank has been maintaining a fixed exchange rate since the 1990s.

Hence, it is not using it actively as a monetary policy instrument, considering that a 10 percent depreciation of the kuna against the euro, due to the high level of ''euro-zation'' of the economy and households, the debt for all sectors in Croatia would increase by more than HRK 50 billion whereas appreciation of the kuna would disrupt the Croatian economy's competitiveness, that is exports, said Vujčić.

He revealed that fairly reliable data indicate that citizens are holding as much as HRK 36 billion in cash. He called on citizens to deposit cash in banks which would facilitate conversion once Croatia enters the euro area.

(€1 = HRK 7.5)

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