Wednesday, 27 October 2021

HNB Governor Says in 2022 Exact Date for Switching to Euro Will Be Defined

ZAGREB, 27 Oct 2021 - Croatian National Bank (HNB) Governor Boris Vujčić said on Wednesday that next year Croatia would know the exact date for its changeover to the euro, adding that a strong campaign will be conducted in 2022 to inform the public of all the details.

Addressing a conference on what switching to the euro would mean for SMEs, which was organized by the 24 Sata daily, Vujčić underscored that Croatia has set a date for the introduction of the euro currency, but next year only will we know the exact date of the euro changeover.

If that is to be 1 January 2023, we have only 14 months for preparations, he said.

A law will be passed precisely regulating the changeover from the kuna to the euro, and the main principle will be to protect consumers so they are not brought into a worse position than they were prior to the conversion.

"The experience in all the countries that have entered the euro area indicate that wages increased more than prices while the standard of living increased and that is why the support for the euro in those countries is very high," he underscored. In other transition countries where the euro was introduced, the support is about 80% which Vujčić believes is proof that the fear of declining living standards is unreasonable.

Dual display of prices

The governor said that in the countries that adopted the euro the practice of dual display of prices was useful.

The dual display will also cover wages and not only prices, he also explained.

The logistics of exchanging the currencies have been worked on for a year and a half already, he said.

Payments will continue in both currencies for the next two weeks after the euro is introduced, explained Vujčić.

Finance Minister Zdrako Marić also underscored that based on current forecasts, the earliest the euro could be introduced is 1 January 2023.

He explained that prices in both currencies will be shown on articles five months prior to introducing the euro and for 1 year after its introduction. Marić believes that legislation related to the euro should be adopted in the spring of next year.

The president of the Croatian Chamber of Crafts and Trades (HOK), Dragutin Ranogajec, expects problems to occur during the 14 day period of payments in both currencies with regard to accounting and fiscalisation.

For more, check out our politics section.

Monday, 18 October 2021

Vujčić: No Room for Panic About Possible Rise in Interest Rates

ZAGREB, 18 Oct 2021 – Croatian National Bank (HNB) Governor Boris Vujčić said on Sunday that Croatian citizens should not fear a sudden rise in loan installments as a result of the rise in the inflation rate.

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.

For more about politics in Croatia, follow TCN's dedicated page.

Sunday, 17 October 2021

Plenković Says Intraparty Elections in HDZ Democratic, Transparent

ZAGREB, 17 Oct, 2021 - Prime Minister and HDZ party leader Andrej Plenković said on Sunday that intraparty elections at which the leaders of the HDZ's city and county branches will be elected, were democratic and transparent.

"Anyone who wanted to run as a candidate could do so, and the process has been transparent and democratic. I do not see any relevant objections or anything that is not in line with democratic standards," said Plenković, who cast his vote in regular intraparty elections.

He expressed hope that local HDZ branches, which are to elect their presidents and vice-presidents today, would contribute to their local communities as well as the HDZ's national policy.

HNB governor should explain his statement about loan installment increase

Plenković was also asked to comment on Croatian National Bank (HNB) Governor Boris Vujčić's warning in an interview with the Novi List daily that loan installments of debtors with long-term loans approved with a variable interest rate could increase from 10% to as much as 20%. Vujčić did, however, note that that scenario was not very likely.

"I have not read the interview, he should explain what he meant. As far as I understand, that is not a very likely scenario. If he has an opinion on the matter, he should make a statement," Plenković said.

In a comment on the International Day to Eradicate Poverty, which is observed today, Plenković said that the government's national development strategy stated that maximum effort should be invested to reduce the number of Croatians who were at risk of poverty or were poor.

"The 20% rate is still very high, as an EU country we must reduce it, not only through social policy but through a policy that enables wage growth and a general atmosphere of equal opportunities," he said, adding that his government would continue working towards that goal in the next three years.

Plenković believes that the progress made in the past five years in the fight against poverty is visible, albeit not as great as one would want it to be.

He wondered what the percentage of people at risk of poverty would be if the government had not intervened with job-keeping measures during the coronavirus crisis.

Asked about the investigation into police violence against migrants on the border with Bosnia and Herzegovina, Plenković reiterated that the case was contrary to the government and Ministry of the Interior's policy, that it was an isolated incident and that the government would do its best to prevent any similar incidents.

For more on politics, follow TCN's dedicated page.

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Monday, 11 October 2021

CNB Governor Boris Vujcic: Croatian Inflation Rate Could be Higher

October the 11th, 2021 - CNB Governor Boris Vujcic has stated that the Croatian inflation rate could be higher, adding that while forecasts of domestic economic growth are positive, there are many negative risk projections to take into proper consideration, too.

As Poslovni Dnevnik writes, CNB Governor Boris Vujcic spoke in Croatian Parliament on Thursday and explained that, unlike the forecasts for Croatian economic growth, which are generally very good, the projections of inflation are dominated by negative risks, ie those that could lead to higher inflation rates.

In Parliament, where he presented the Croatian National Bank's semi-annual piece of information on the nation's overall financial situation, price stability and the implementation of monetary policy in the second half of last year, Vujcic reminded those present of the CNB's projections for economic growth of 8.5 percent this year, and of 4.1 percent in 2022, which, he estimated, will have a positive impact on both the situation with employment and the situation with average wages.

"Due to the sheer amount of uncertainties which still remain in place, it's possible that these projections will not end up actuallybeing realised, but unlike the previous ones, the positive and negative risks are balanced," said Vujcic. He explained that the negative risks to the domestic economy relate to the possibility that the epidemiological situation in the Eurozone will worsen in the fourth quarter and that any remaining restrictive measures will be tightened once again, which would result in weaker foreign demand and as such, negatively affect Croatian exports.

When it comes to the situation with inflation, it will accelerate to 2.3 percent this year, and slow slightly to 2.1 percent in 2022. In the previous part of the year, the acceleration of inflation occurred mainly under the influence of rising energy and food prices, said CNB Governor Boris Vujcic, emphasising the fact that the current projections of inflation are dominated by negative risks, ie those that could lead to higher rates eventually.

For more on Croatian monetary policy, follow our politics section.

Saturday, 9 October 2021

Inflation Rate in Croatia Could Be Higher, Says Boris Vujčić

October 9, 2021 - When it comes to the inflation rate in Croatia, it will accelerate to 2.3 percent this year, and slow slightly to 2.1 percent in 2022, according to the Governor of the Croatian National Bank (CNB), Boris Vujčić.

The Governor of the Croatian National Bank (CNB), Boris Vujčić, said in the Croatian Parliament on Thursday that, unlike the forecasts of economic growth, the projections of inflation are dominated by negative risks, such as those that could lead to higher rates, reports Poslovni Dnevnik. In Parliament, where he presented the CNB's semi-annual information on the financial situation, price stability, and implementation of monetary policy in the second half of last year, Vujčić reminded of the CNB's projections for economic growth of 8.5 percent this year, and 1 percent in 2022, which he estimated, will have a positive impact on employment and wages.

"Due to the still great uncertainties, it is possible that these projections will not be realized, but unlike the previous ones, the positive and negative risks are balanced," said Vujčić. He explained that the negative risks to the economy relate to the possibility that the epidemiological situation in the euro area will worsen in the fourth quarter and the restrictive measures will be tightened, which would result in weaker foreign demand and negatively affect Croatian exports.

When it comes to inflation, it will accelerate to 2.3 percent this year, and slow slightly to 2.1 percent in 2022. In the previous part of the year, the acceleration of inflation occurred mainly under the influence of rising energy and food prices, said Vujčić, emphasizing that the projections of inflation are dominated by negative risks, ie those that could lead to higher rates.

Previously, in mid-September, Vujčić himself commented on the expectations about the inflation rate in Croatia regarding the next insertion of the euro as the official currency in the country, commenting about the situation in the United States, that ''it has a higher inflation rate, but the economy is overheated there, they also have strong fiscal stimuli that are stronger than European ones and I do not see that at this time such an inflation rate could happen in Croatia, we expect that year-round inflation rate to be 2.2 percent. This is, in principle, the goal of the European Central Bank, so we should not be concerned about that. The problem is if there is a change in expectations, wage growth, but we do not see that at the moment''.

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Thursday, 23 September 2021

Croatian Eurozone Accession: Changes to Begin as Early as Next Summer

September the 23rd, 2021 - Croatian Eurozone accession might still seem like a far away event on the domestic political stage, but it is edging ever closer and things are set to start being quite significantly different as of next summer.

As Poslovni Dnevnik writes, preparations for Croatian Eurozone accession have already started, and one of the measures is to ensure that prices don't increase significantly, which is something most people fear when asked what their worries surrounding the process of phasing out the Croatian kuna is.

Tihomir Mavricek pointed out that this will be among the very first things that will be tackled, and that the fixed exchange rate will be determined just before the decision of the EU Council on the introduction of the euro as Croatia's official currency.

"It will be around 7.53, but it will finally be determined in May or June next year and will become valid from January the 1st, 2023. Until December the 31st, 2022, the commercial exchange rate will be valid, it'll be as we have it now," he explained for HRT.

"There's no need to be afraid of price increases"

Many people are afraid of price increases as a result of Croatian Eurozone accession, but Mavricek has assured that the practice of countries that have already adopted the euro has shown that the replacement of the national currency has had very little effect on price growth, ie inflation.

"The countries that first adopted the euro had a small so-called harmonised growth of the consumer price index, which ranged between 0.09 and 0.28 percentage points. Countries that later adopted the euro had one which stood at around 0.3 - so we don't expect any significant impact on prices, maybe of some 0.37 percentage points, with the biggest impact coming from services and a slightly smaller number of commonly used products, such as pastries and newspapers,'' said Mavricek.

After the introduction of the euro in neighbouring Slovenia, prices in transport, restaurants and hairdressing/beauty salons increased, while in Slovakia the prices of food and construction works increased.

"Research has shown that these increases mostly regard products that don't affect people with lower incomes when compared to those with higher incomes, such as sectors like accommodation services, restaurants, and sports services - these are usually services used by people with higher incomes," explained Mavricek.

For more on Croatian Eurozone accession, check out our dedicated politics section.

Thursday, 2 September 2021

Governor Says Legal Changes to Cut Banks' Revenue by More Than HRK 100mn Annually

ZAGREB, 2 Sept 2021 - Croatian National Bank (HNB) governor Boris Vujčić has said that the HNB's legal proposal is aimed at regulating tacit overdrafts the same way authorized overdrafts are regulated, which would result in greater consumer protection but also cause a drop in bank revenue of more than HRK 100 million annually.

Addressing a news conference on Thursday, Vujčić recalled the HNB's proposal for amendment of the Consumer Credit Act in the segment concerning authorized and tacit overdrafts. The HNB will agree to those changes with the government and it will also meet with bank representatives, Vujčić said, noting that the final form of the bill had still not been defined.

Vujčić said that the HNB completed a market analysis in Q1 2021 and that its findings, together with legal proposals, were presented to the Finance Ministry in April.

The analysis of the overdraft market was launched in 2020, showing that a large portion of overdrafts had changed from authorized to tacit overdrafts.

Vujčić stressed that the Consumer Credit Act, adopted much earlier, was designed to make tacit overdrafts an exception, but that when it was established that most overdrafts had turned into tacit overdrafts, a decision was made to impose the same regulation mechanism for those overdrafts as for authorized overdrafts.

In the case of authorized overdrafts, the effective interest rate is capped and banks have the obligation, when opting to cancel that service, to offer their client the possibility of repaying their debt in 12 installments.

"This legal proposal is an attempt to set a maximum effective interest rate (on tacit overdrafts) and make banks offer repayment in installments if their clients get into problems. Banks can do that now but they are not obliged to. In the future, they will have to do just that," said Vujčić.

He noted that the legal proposal was not about abolishing tacit overdrafts.

New agreements on tacit overdrafts will thus have to be limited to 90 days and HRK 1,500, and Vujčić said that the adoption of the new law could result in a drop in bank revenue of HRK 100 million annually, noting that that would depend on the final version of the bill, however, the estimate was not expected to change significantly.

Depending on the type of loan, wage, and overdraft amount, consumers would be able to save between HRK 150 and 450 a year.

Interest rates should reflect product-related risks 

Vujčić also said that of some 1,000 consumer complaints the HNB received in 2020, seven referred to tacit overdrafts, and when asked if the HNB could have reacted sooner, he said that this was not a problem previously as the effective interest rate on tacit overdrafts was not high.

The average effective interest rate for overdrafts grew in 2020 because banks raised their fees, not interest rates. "Before that, we did not have any reason to intervene, and now we do," he said.

Vujčić said that the matter was a very complex and sensitive one and that putting a cap on the interest rate was not, as believed by some, necessarily the best solution because it could exclude a large number of citizens from the market.

He noted that interest rates should reflect product-related risks and that in principle tacit overdrafts indeed entailed the most risk as there was no collateral and the client's creditworthiness was not checked, hence the high-interest rate.

He added that interest rates on tacit overdrafts in Croatia were lower on average than in EU countries that had not introduced the euro and higher than in those that were part of the euro area, but that that was not the case with other financial products.

Speaking of inflation, Vujčić said that there was no risk of very high inflation rates.

"However, in the euro area the inflation rate is slightly higher than forecast but we are still between 2% and 3%, which should not be worrying," he said.

For more on politics, follow TCN's dedicated page.

Saturday, 28 August 2021

Croatian Sovereignists Launching Campaign for Referendum Against Euro Introduction

ZAGREB, 28 Aug, 2021 - A member of parliament from the Croatian Sovereignists party, Marko Milanović Litre, said on Saturday that his party was launching a campaign for a referendum on the introduction of the euro, criticising the government for ignoring citizens' opinion on the matter.

Prime Minister Andrej Plenković, Croatian National Bank Governor Boris Vujčić and a whole set of Brussels bureaucrats have decided on their own that Croatia should join the euro area, Milanović Litre said in a Facebook post, noting that his party had launched a campaign to protect the national currency, the kuna.

"Referendum is the only way to accomplish that," he said.

Criticising Plenković and his government's attitude to referendum initiatives and what he called disregard for citizens' role in them, Milanović Litre said that that attitude was evidenced by Plenković's recent statement that "from a formal and legal point of view, a referendum on the introduction of the euro was already held in 2012 and a new one is not necessary."

The MP said that ballots for the 2012 referendum on Croatia's accession to the EU, to which Plenković was referring, featured only one question: "Are you in favour of Croatia's accession to the European Union?" and that the referendum campaign made no mention of accession to the euro area.

The Croatian people have the right to state their opinion on all important topics that affect their lives, notably decisions whereby a part of their hard-won sovereignty is ceded to Brussels, said Milanović Litre, adding that Croatia was poorly prepared for EU membership.

For more on politics, follow TCN's dedicated page.

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Thursday, 29 July 2021

Bank Warns of Potential Jeopardy Despite Good Croatian Economic Outlook

July the 29th, 2021 - The Croatian National Bank (CNB/HNB) has warned of potential issues that the domestic economy might yet face despite the currently favourable Croatian economic outlook.

As Poslovni Dnevnik writes, due to the possibility of a new wave of the coronavirus pandemic and potential lockdowns, there is room for the further growth of property prices above their real value with the risk of a sudden and sharp decline, as well as the growth of bad loans after the abolition of measures and grants. These are just a couple of potential issues which could arise and directly threaten Croatia's still fragile recovery and growth throughout the rest of 2021.

The current Croatian economic outlook is good, and that growth is expected to be between 5 and 7 percent, as most analysts see it, while the most optimistic of all is the CNB itself, which in its baseline scenario expects as much as 6.8 percent of GDP growth this year. Personal consumption, investment, as well as exports are growing, and a massive stimulus from the National Recovery and Resilience Plan is expected.

Of course, all of this mostly depends on the summer season for which tourism workers are now trying to make last for as long as possible and bring at least 70 percent of revenue from pre-pandemic 2019. The success of the 2021 tourist season depends mostly on the (non)materialisation of this first risk, reports Novi list.

CNB Governor Boris Vujcic recently explained that the aforementioned growth is higher than 6 percent (6.8 percent) of the CNB's basic scenario: this is what the CNB expects as the most probable course of events, and it implies that the worst of the crisis is behind us, but dangers remain.

In short, the national bank doesn't expect that the aforementioned risks will materialise, however, there is a danger which remains and the central bank is aware of it. Therefore, if there was a significant deterioration of the epidemiological situation and the fourth wave did arrive, Vujcic said that the Croatian economy would survive another lockdown, but growth, he said, would be slower due to the situation in the most affected sectors.

There are also sectors that work independently and aren't really influenced by the pandemic, and they would still pull in some growth in such a dire scenario. The CNB has now, in a new issue of its publication Macroprudential Diagnostics, enumerated these potential triggers for the creation of a risk and analysed them in detail.

“The great uncertainty and unpredictability of the course of the pandemic poses risks in the coming period, despite the growing proportion of the population being vaccinated. The possibility of a new wave after the summer months is an important risk to take into consideration for the continued recovery of Croatian economic activity.

The possible worsening of the epidemiological situation and the strengthening of epidemiological measures, including localised measures, would adversely affect the speed of recovery and the Croatian economic outlook, as well as the sustainability of public finances,'' the CNB said.

Delaying Croatian economic recovery and premature withdrawal of measures introduced during the pandemic could lead to a deterioration in the debt service capacity of part of the private sector, especially those in which debt levels are high and support measures contribute significantly to maintaining relatively stable incomes. Total exposure to systemic risks during the second quarter of 2021 remain high, according to the CNB.

Further progress in terms of the vaccination of the population, together with the mitigation and eventual abolition of epidemiological measures, should support the continuation of the economic recovery during 2021 and secure a decent Croatian economic outlook going forward.

For more, follow our lifestyle section.

Monday, 26 July 2021

Croatian National Bank Answers Important Question About Eurozone Entry

July the 26th, 2021 - The Croatian National Bank has revealed just how long we'll be able to make payments in both Croatian kuna and in euros as the country prepares to join the Eurozone at the beginning of 2023, as is currently planned.

As Poslovni Dnevnik writes, according to previous announcements, Croatia should enter the Eurozone and as such finally adopt the on January the 1st, 2023, and before the euro officially becomes the country's official currency in replacement of the kuna, many preparations will have to be made.

When it comes to just who will be in charge of the technical realisation of some important things about the introduction of the euro and how the euro will work at the very beginning, the Croatian National Bank confirmed for Net.hr that the new euro coins of the Republic of Croatia will be made at the Croatian Monetary Institute.

"The production of euro circulation coins with the Croatian national symbols will begin at the earliest six months before the day of the introduction of the euro, ie after the EU Council Decision that Croatia will introduce the euro," the Croatian National Bank explained.

With the day of the introduction of the euro as the national currency of the Republic of Croatia approaching, a sufficient amount of euro coins will be prepared for circulation to meet the needs of all people and business entities, the national bank added. What everyone is interested in at the moment, however, is just how long it will be possible to use both kuna and euro in parallel before the kuna is phased out and placed in this history books entirely.

"During the first two weeks from the day of the introduction of the euro, kuna and euros will remain in circulation at the same time, and traders should return the rest of the money to customers which have paid in kuna exclusively in euros," the Croatian National Bank explainsed After that period, the euro will be the only legal tender allowed in the country, they added.

"In order to ensure a smooth transition to the new currency, in a short transition period, the kuna and the euro will have the status of legal tender at the same time. In other words, people will be able to pay in both currencies in the first two weeks starting from the day the euro is introduced in stores. After two weeks from the day of the introduction of the euro, the euro will be the only legal tender in the Republic of Croatia,'' they stated from the Croatian National Bank.

Money, meaning Croatian kuna, can be exchanged for euros free of charge for the first six months of the euro being in use in the country. However, if someone does forget to exchange any kuna cash they have into euros after that deadline, it will still be possible. Namely, in the first six months from the day of the introduction of the euro by the bank, Fina and Hrvatska posta d.d. will allow kuna cash to be exchanged for euros in all branches free of charge, and in the next six months they will be entitled to charge a fee for this service.

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