Good economic results have supported stronger kuna.
Lower average exchange rate of euro against the kuna in 2016 compared to previous years confirms that the kuna was exposed to appreciation pressures and therefore it is no surprise that for the first time since 2012 the Croatian National Bank (HNB) intervened in the foreign exchange market more by buying than selling the euro, reports Jutarnji List on January 2, 2017.
In December 2016, HNB conducted two foreign exchange interventions and bought the total of 716.3 million euros, at the average exchange rate of 7.5586 kuna per euro, according to an analysis by Raiffeisenbank Austria (RBA) published on Monday.
“However, the kuna has not weakened significantly against the euro. Favourable economic developments have supported the stronger kuna against the euro at the end of 2016”, they said. “Lower average exchange rate of the euro against the kuna in 2016 compared to previous years confirms that the kuna is more exposed to appreciation pressures in periods of growth of the economy”, said RBA analysts.
They believe that during the first quarter of 2017 the exchange rate against the euro will approximately be the same as it was during the last quarter of 2016, while towards the end of the quarter we can expect a fall in the euro exchange rate against the kuna, given the expected inflow of foreign currency due to the beginning of the tourist pre-season.
“Possible eurobonds issue by the government should not affect the market trends because the conversion to kuna would be carried out at the Croatian National Bank, as in previous cases”, said the RBA analysts. If bonds were to be issued at Croatian market, they would most likely be denominated in the kuna, and would therefore provide support for the Croatian currency, despite abundant liquidity which continues to be provided by expansionary monetary policies of the central bank.
“The current level of liquidity in the system exceeds 11 billion kuna which, together with weakening demand for the kuna by foreign banks, resulted in a reduction of interest rates in the national money market. Market interest rates have also recorded a slight decline, and the assumption is that the trend will continue in the days ahead”, concludes the RBA analysis.
