ZAGREB, 19 March, 2021 - Croatia will enter the euro area on 1 January 2023 at the earliest, and introducing the euro has a number of advantages but for those advantages to be greater the economy needs to be more flexible, including with regard to the labour market, a conference heard on Friday.

The conference, focusing on the introduction of the euro as the official currency in Croatia, was organised by the students' association Financial Club.

Croatian National Bank (HNB) Governor Boris Vujčić said in his opening remarks that Croatia cannot enter the euro zone before 1 January 2023.

"Whether Croatia will enter the euro area on 1 January 2023 or a year or two later, depends on when it will meet the nominal convergence criteria," said Vujčić, recalling that in July 2020, Croatia entered the European Exchange Rate Mechanism II (ERM II), a sort of waiting room for the euro.

He explained that the ERM II envisaged a minimum two years of participation in it so that a candidate aspiring to join the euro area can meet the nominal convergence criteria (Maastricht criteria). On the other hand, if it does not satisfy the criteria, which refer to the stability of the exchange rate, prices and interest rates, the budget deficit and the level of foreign debt, a country can remain in the ERM II indefinitely, Vujčić said.

He recalled a survey indicating that citizens fear that with the introduction of the euro the standard of living will deteriorate and prices will increase. However, surveys in countries that have already introduced the euro indicate that prices increased by 0.23 percentage points on average in the year when the euro was introduced, mostly for everyday goods such as coffee. Prices of such products are relatively lower so their increase could have been relatively high due to rounding off.

"That left the impression in public that prices increased more than they did," explained Vujčić, underscoring that the standard of living did not fall in any country that introduced the euro but rather it improved.

Ćorić: Biggest advantage to companies exporting to euro area

Minister of Economy and Sustainable Development Tomislav Ćorić said that it was clear that citizens would not start living better on the first day of introducing the euro, however, what points to better prospects was the fact that the macro environment in the euro area was free of risks that non-member countries were faced with.

The risk premium in all countries that entered the euro area has dropped, said Ćorić, noting that that was something that in normal circumstances should  bring benefits to Croatia, such as reducing yields on long-term security instruments and lower interest rates on commercial and consumer loans.

Considering, however, that we live in "fairly radical economic times," and a period of very low interest rates, the effects which countries that entered the euro area some ten years ago had would be somewhat lower, however, they would still be significant, he said.

The advantages are potentially biggest for export-oriented companies considering that the exchange rate risk will be eliminated, he said.

Ćorić said that the project for euro introduction was not an end in itself but was primarily a very good tool for Croatia's long-term economic growth and development.

Mačkić: Flexibility of labour market, final goods and services market

President Zoran Milanovic's economic adviser, Velibor Mačkić, conveyed the president's message saying that it was necessary to discuss the benefits and potential harm of Croatia joining the euro area.

Mačkić believes that Croatia has not developed its own institutions sufficiently and that that poses a problem. "The country needs a different economy, a much more flexible economy, to be able to benefit more significantly from the monetary union," said Mačkić.

He added that the labour market and the market of final products and services need to be more flexible.

Mačkić underlined the importance of an efficient fiscal policy and of the reform of the tax system which Mačkić believes needs to change from "a consumption-based to income-based tax system."

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January the 29th, 2021 - Boris Vujcic, the Croatian National Bank's Governor, has been awarded for the Croatian monetary reform policy which enabled the stability of the Croatian kuna against the euro.

As Poslovni Dnevnik/Ana Blaskovic writes, CNB Governor Boris Vujcic has received the Lamfalussy Award for 2021, named after the "father of the euro" Baron Alexandre Lamfalussy, of the Hungarian National Bank.

Vujcic was awarded for the Croatian monetary reform policy, which enabled the stability of the kuna against the euro, which subsequently enabled Croatia to join the European Exchange Rate Mechanism back during the summer, and they also state his key role as deputy chief negotiator with the European Union (EU).

In his thanks for this recognition, Vujcic focused his speech on the issue of monetary policy in emerging markets when the largest central banks resort to unconventional instruments.

With humorous associations to the novel A Hitchhiker’s Guide to the Galaxy and Monty Python, he emphasised the extremely low real interest rates that are likely to become permanent features of economies.

"The main reason why emerging market countries started implementing APP from today's perspective is obvious - these programmes were successful," said Vujcic, recalling that the CNB made one of the largest buyouts in emerging markets last year, about 5.5% of the country's GDP, which is only about half the amount of the ECB programme in that year”.

He added that Croatia's conclusion of a currency swap agreement with the ECB and its entry into ERM II also helped stabilise the market. He pointed out that the recent development of the monetary policy regime in emerging markets “cannot be taken for granted” because they do not issue reserve currencies and heavily depend on foreign borrowing.

The Belgian economist and central banker Lamfalussy was born in Hungary in 1929. He participated in the work of the Delors Commission, which laid down the foundations of the European Economic and Monetary Union, with a prominent role in founding the ECB and creating regulation of the European financial system. He died in 2015, the Lamfalussy Prize was established back in 2014 and is awarded for outstanding professional achievements and life achievements of individuals that affect the work of central banks and the functioning of the international financial system.

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ZAGREB, 25 January, 2021 - The Executive Board of the Central Bank of Hungary (MNB) has decided to give the 2021 Lamfalussy Award, named after the late Baron Alexandre Lamfalussy, the "father" of the euro, to Croatian National Bank (HNB) Governor Boris Vujčić.

The MNB Executive Board said it wanted to acknowledge Vujčić's achievements as HNB Governor, namely the reform of Croatia's monetary policy that had enabled the stability of the kuna in relation to the euro, which led to Croatia's accession to the European Exchange Rate Mechanism II (ERM II) last summer.

The MNB Executive Board also cited Vujčić's role in organising the Dubrovnik Economic Conference, which is attended every year by renowned economists and creators of monetary policies from around the world.

Vujčić, the keynote speaker at an online conference on the future of monetary policy after COVID-19 pandemic, thanked the MNB for the award.

Lamfalussy, a Belgian economist and central banker, was born in 1929 in Kapuvár, Hungary. He studied at the Catholic University in Leuven and Nuffield College in Oxford, where he earned a PhD in economics. He took part in the work of the Delors Commission, which laid foundations for the European Economic and Monetary Union, was the first president of the European Monetary Institute and had a prominent role in the establishment of the European Central Bank and in the creation of regulations of the European financial system.

The MNB established the Lamfalussy Award in 2014.

As Ljubica Gataric/VL/Poslovni Dnevnik writes on the 14th of November, 2020, back in July this year, Croatia joined the European Exchange Rate Mechanism (ERM II) and the Banking Union, which is one of the last formal steps towards Eurozone entry.

The positive response from Frankfurt and Brussels was waited on for about a year, and it came during an extremely difficult period in which the coronavirus pandemic dominated, acting as an important signal that Croatia will not have to fight the consequences of this unprecedented crisis alone.

Three months earlier, the decision was preceded by an agreement between the European and Croatian central banks, according to which Croatia received two billion euros to have at its disposal to keep the national exchange rate stable. The validity of the currency swap was extended until the middle of next year, which effectively accepted the Croatian kuna as part of the European monetary system.

So far, the CNB hasn't used this lever, ie, it didn't have to exchange Croatian kuna for euros with the European Central Bank in order to defend the exchange rate. Despite the fact that such a move ended up not being necessary, this reserve was psychologically extremely important when, due to quarantine measures and the spread of the novel coronavirus, SARS-CoV-2, things went downhill. The CNB's foreign exchange reserves were more than enough to alleviate initial exchange rate pressures and allow for the unhindered financing of the state budget, and after their reduction of approximately 2.5 billion euros, the amount of reserves returned to the levels we had before the coronavirus pandemic struck. If the economy recovered at that speed, there would be less fear and uncertainty about the arrival of the second wave.

The Croatian authorities hope that Eurozone entry will see the kuna replaced by the euro as Croatia's official national currency by the year 2023, and in line with this intention, a budget proposal for next year has been prepared, which envisages reducing the budget deficit below 3 percent and gradually lowering public debt, which has increased significantly this year.

In the coming days, the last strategic document related to Croatian Eurozone entry should be presented to the public - the National Plan for the Exchange of the Croatian Kuna with the Euro, which will provide numerous technical details related to the exchange of currencies.

"Consultations with stakeholders involved in this process have already been carried out, and after its drafting, which is nearing completion, the adoption of this plan will follow at the level of the Croatian Government," said Zvonimir Savic, the Prime Minister's advisor.

CNB Governor Boris Vujcic believes that "on the way to the euro, a dynamic recovery of the economy and the keeping hold of fiscal indicators within the reference framework from next year is crucial."

The national exchange plan should state how the procurement and distribution of cash will be organised, and this should include numerous things, such as where and within what period citizens will be able to exchange kuna cash for euros, how to convert kuna deposits and loans, but also other financial instruments, such as how interest rates will be adjusted, how prices will be recalculated, how the government will protect consumers from incorrect price recalculations and how the Croatian legal framework will be adjusted for the needs of Eurozone entry.

As citizens fear that Croatia's Eurozone entry will negatively effect living standards, a special emphasis will be placed on measures to curb rising prices. A survey related to the introduction of the euro showed that citizens are mostly worried about possible price increases. "We must now work on talking more about the examples of other countries, where the exact opposite happened - the standard of living of citizens has risen after the introduction of the euro," said Vujcic. The central parity for replacement is set at the level of 1 euro = 7.53450 kuna, and the general opinion is that in the following period the exchange rate will be held around that same established parity.

Croatia and Bulgaria are also the first candidates for entry into the banking union before the formal adoption of the single currency, and the ECB recently announced the results of the first ''stress test'' of five Croatian banks, which showed they all meet Eurozone and European Banking Union criteria. Every new member that joins the European Union has legally committed itself to adopting the euro, but there is no deadline within which it must do so, nor is the adoption of a common currency a unilateral decision. Only the United Kingdom successfully secured an opt out.

Of the new EU members, the Czech Republic, Poland, Hungary, Romania, Bulgaria and Croatia still haven't adopted the euro as their currency.

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As Poslovni Dnevnik writes on the 30th of October, 2020, in an interview with Media Service Week, CNB Governor Boris Vujcic spoke about whether the Croatian economy can withstand another lockdown, about recovery, the budget, international reserves and revealed whether the pandemic will make it harder for us to enter the Eurozone.

Many countries are introducing lockdown, although we're wary of that word, in Croatia it is being talked about more and more often due to the worsening epidemiological situation. If that scenario happens again, can our economy survive it?

''We can, we can certainly survive even if there's a full lockdown. However, it must be borne in mind that it's very expensive, as it turned out to be before as well. You can see that we ended the year with a budget deficit of 29.5 billion kuna. This is due to just this type of lockdown. If possible, it is good to avoid this type of lockdown because it leaves consequences in terms of a large debt that will have to be repaid tomorrow,'' said Boris Vujcic for Media servis.

He emphasised that the CNB is in a position to be able to finance needs as they could in the spring, and if we continue with the current epidemiological measures for a long time, Boris Vujcic says that it will be a blow to the living standard of the entire population. According to the latest estimates, the decline in GDP this year will be a concerning 8 percent, while next year it is expected to grow by 5 percent and by the end of 2022 there'll be a full recovery for Croatia. These percentages, especially the recovery forecast, are considered unrealistic by many in political circles and even the economic profession, especially those who take into account that Croatian public debt is a sky high 330 billion kuna and that the country's budget is mostly based on personal spending and borrowing.

''Just after we came out with those predictions, the number of coronavirus infections also rose sharply. It means that some of these negative risks have begun to materialise. However, once again, it's very difficult to say what will happen by the end of the quarter,'' he explained.

Asked if there were any indications that this estimated decline in GDP would be higher this year and that a slower recovery would follow, he said that the CNB gives its estimates only every three months and that in the latter they said that negative risks prevailed:

"In the autumn baseline scenario, we can assume that we'll have a vaccine in the first quarter. I think this is the most realistic assumption at the moment because as far as I hear from epidemiologists, coronavirus vaccines are in their final stages of testing,'' Boris Vujcic noted.

If things do develop that way, he claims that Croatia will have a faster economic recovery. However, if complications occur, then a worse situation awaits us. He believes that at the moment we're balancing well between restrictive measures and preserving the domestic economy. When it comes to the CNB's gross international reserves, when asked if it was critical at the time of the spring lockdown and if he wondered during that period whether they were sufficient, he replied:

"Yes When something like this starts, then one always wonders if they're going to be enough. When this started, there was a sudden demand for foreign exchange. We responded by intervening with international reserves of 5.1 percent of GDP, which is a huge intervention. In a couple of weeks, we had to spend 2.6 billion euros, and at that moment, of course, one can see how much these reserves are and what will happen if they continue to decrease at this rate. You get the question of: How long can it last?''

But then the CNB agreed with the European Central Bank to establish a swap line, that is, for us to give them kuna and they give us euros. Governor Boris Vujcic explains that at that time, all speculators against the kuna gave up because everyone on the market knows that this will increase international reserves and the possibility of maintaining exchange rate stability. In September, these reserves amounted to 18.3 billion kuna. If we fail to avoid a new lockdown, will we again find ourselves in a similar situation where we're wondering if we have sufficient supplies?

"I think we're even more prepared at the moment than we were back at the beginning. The main reason is that in July we entered the exchange rate mechanism of the European Union - ERM II. In this mechanism, we have automatic access to the swap line of the European Central Bank,'' assured Boris Vujcic.

Since we've been in a kind of "euro waiting room" since back in July and there are earlier estimates that Croatia could introduce the euro on January the 1st, 2023, will the pandemic prolong that waiting room?

Boris Vujcic explained that we eliminated the first risk, and that was the entry into the exchange rate mechanism, and the second risk is that we might not end up meeting the nominal convergence criteria:

"In terms of inflation, interest rates and exchange rates, it's unlikely. As far as public debt is concerned, it's unlikely, because our public debt must fall by one twentieth of the difference between the current level of public debt and 60 percent. This is a realistic expectation. The biggest and currently the only real risk is that the budget deficit must be kept below 3 percent,'' concluded VNB Governor Boris Vujcic.

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The CNB Governor Boris Vujcic pointed out that Croatian tax reforms, which will have implications next year, is something that should contribute to increasing personal consumption, ie consumer optimism.

As Poslovni Dnevnik writes on the 1st of September, 2020, the CNB Governor Boris Vujcic was a guest on N1 recently, on which he commented on the decline of Croatia's GDP, he also discussed economic expectations for the country in 2021.

Vujcic said that the decline in GDP of just over 15 percent is in line with trends across the European Union, where the average GDP fell by 14 percent, and everything depended on the intensity of epidemiological measures.

"As for the whole year, we expect that in the third quarter, tourism will be better than what we projected it to be in the baseline scenario. Basically, we expected a drop in tourist revenues of 70 percent, and given the achievements, we can say that we expect at this time that the decline will be between 30 and 50 percent when compared to 2019,'' said Vujcic.

However, the CNB Governor pointed out that this will be influenced by the further development of the epidemiological situation in Croatia and across Europe as a whole, as well as possible additional measures that will be taken, so the uncertainty is still quite high.

As far as tourism is concerned, considering the epidemiological situation and what other countries are doing, Vujcic believes that we have gained the maximum possible. "We can't expect September to contribute significantly to that picture," he added.

Commenting on the possible growth of household consumption, CNB Governor Boris Vujcic said that that is largely influenced by expectations, consumer optimism, and it depends on the situation on the labour market, the state of employment and unemployment and income expectations. "If people feel uncertainty, they're afraid that they might lose their jobs, if they expect or they 'e afraid that their salaries could be reduced, then they're going to spend less than they might otherwise," Vujcic said.

“At the moment, we're in a situation where, given that the quarantine has ended, personal consumption indicators are improving in the third quarter, but they're far from the levels we had in 2019,” he added. He pointed out that tax reform, which will have implications next year, is something that should contribute to increasing personal consumption, ie consumer optimism.

When it comes to economic downturn, the decline in sources of goods and services stands at 40.6 percent, however, merchandise exports fell by only 10 percent, which analysts are very pleased with.

"The Croatian economy is now much stronger and more resilient than it was back in 2010, 2011 or 2012, and this is a consequence of the fact that Croatia joined the European Union in 2013, after which merchandise exports began to grow strongly and after which our economy became more strongly integrated with the economy of the European Union. Due to social distancing and all of the measures that were taken, services are much more sensitive to this situation with the pandemic,'' said Vujcic.

The CNB expects that Croatia will have a strong recovery in 2021, and there is still a lot of uncertainty and uncertainty about how the situation with the ongoing coronavirus pandemic will develop further.

"We can maintain macroeconomic stability without any issues, and fiscal indicators can improve, as far as the trend of public debt-to-GDP ratio is concerned. As for the exchange rate, we're ready to maintain the stability of this exchange rate until entering the Eurozone,'' said Vujcic.

"The CNB provides liquidity, both in kuna and foreign currency, and at the same time we provide favourable financing conditions, favourable interest rates. The exchange rate is stable and interest rates are at their historically lowest levels. Interest rates on housing loans have reached 2.5 percent, which means that they fell during the crisis, and as far as cash loans are concerned, they're at their lowest levels,'' said the CNB Governor Boris Vujcic.

"As far as lending is concerned, we have a situation where banks have given 3.5 billion kuna to companies, and now the demand for loans is declining, and the conditions for lending are becoming stricter, because the risks are growing. The higher the risk, the stricter the conditions will be. Cash loans have fallen, and housing loans continue to grow and have risen about 9 percent this year. In the new cycle of the APN, we can expect housing loans to increase again, while for cash loans we can't expect that,'' he concluded.

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As Novac writes on the 23rd of August, 2020, the Governor of the Croatian National Bank (CNB/HNB), Boris Vujcic, said as a guest on HTV's Dnevnik that at this moment in time, given the fact that the results from the Croatian tourism sector are better than predicted, a smaller decline in GDP can be expected. He stated that as long as something unforeseen doesn't happen, strong recovery of the Croatian economy is possible next year.

This, he noted, will also depend on other branches of the economy and on what will happen with the ongoing coronavirus pandemic in autumn. Boris Vujcic also announced the strong growth of public debt this year, while it is expected to fall again next year. The CNB estimates that the share of public debt in GDP would increase from 73 to 87 percent of GDP this year.

"Public debt will increase more this year than the total reduction of public debt was from 2014 to last year. We've had a continuous reduction in public debt and will now come to 87, almost 90 percent in one year. It's good that we can see a reduction in public debt next year, because we expect the strong recovery of the economy,'' said Boris Vujcic.

When asked what citizens can expect, Boris Vujcic said that a further drop in interest rates should be expected as we approach entry into the Eurozone. He also supported the claim that interest rates are currently at the historically lowest levels with the fact that those on housing loans have now reached about 2.5 percent, from some 3 percent back in 2019.

Asked about the possible impact of the coronavirus crisis on the banking system, Vujcic said that the economy will fall sharply this year and banks will feel the consequences in terms of reduced revenues, reduced profits, and some will have losses.

''However, the banks are very well capitalised, so they're able to withstand the decline in results this year. And in that sense, savings are safe,'' the governor said.

When asked about estimates of unemployment, he reminded us of the fact that the biggest contraction in Croatia's economic activity was recorded in the second quarter of 2020 and that part of the effects of rising unemployment will be seen in the fourth quarter. However, this growth will not be nearly as strong as it was after the financial crisis of 2008. Boris Vukcic estimates that it will be relatively moderate.

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As Poslovni Dnevnik writes on the 21st of April, 2020, Croatian National Bank Governor Boris Vujcic spoke on Dnevnik N1 about moves the Croatian National Bank (CNB/HNB) is making in connection with the ongoing coronavirus crisis. He said that Croatia is currently in an unusual situation, as is the case when part of the economy needs to be shut down.

"Estimates which are now being made roughly estimate that one month of shutting down the economy brings us a three-point drop in GDP. According to the IMF, the GDP drop 3 percent every month,'' Boris Vujcic said, adding that at the moment, the need to finance the budget is adding up to about ten billion kuna a month.

''We're doing a scenario model where we go with three scenarios - optimistic, pessimistic and basic. They're based on the assumptions of how long the economy can function in this restrictive model. The longer that time goes on, the longer Croatia's GDP falls. We don't know how long it will take, so we can't do a single projection. The depth of the recession this year will depend on whether it's six, nine or twelve weeks of the economy having to work in quarantine.

We expect strong economic recovery in 2021, but not one that would allow for the economy to reach the GDP level of 2019 by the time 2022 rolls around. In an optimistic scenario, we can expect to reach that level of GDP at the end of the projection horizon,'' Boris Vujcic said.

Finance Minister Zdravko Maric said Croatia needed between 60 and 75 billion kuna for three months' worth of assistance packages.

''The need for financing can be done partly on the domestic financial market, by banks and other financial participants, the other way of financing is funds and the third part can be done on the foreign market.

The CNB has done several things. At the beginning of the crisis, it ensured the stability of the exchange rate through foreign exchange interventions on the market. The second part of these actions was to provide additional liquidity on the market, and the third part was related to securities, with which we stabilised the Croatian state's bond market.

We're ready to defend that [same] course. The CNB kept the kuna exchange rate stable and will continue to do so until the introduction of the euro happens. Now is the opportunity to see how important it is to have large international reserves,'' the Governor explained.

If Croatia had introduced the euro today, we would have been in a more favourable position, Vujcic added.

"If we were in the Eurozone, we wouldn't have had an issue with maintaining the exchange rate stability, we'd have the monetary policy of the European Central Bank, which prints one of the two major world currencies. We'd have the resources of the European Stability Mechanism, in addition to that of the ECB, where each Eurozone country can obtain two percent of its GDP, which would have meant another billion euros in our case,'' Boris Vujcic said.

"The CNB has changed, adjusting its regulatory framework for banks for a year, which allows banks to be able to allow customers to defer their payments of liabilities for a period of three months to a year. Not every client has the same commitment and not everyone will be equally affected. If a law were written on this issue, it would be difficult to enact it by determining who has a right and who has no right. Some need that for a short period of time, some need it for a long period of time, some don't need any time at all.

At the end of last week, out of 30,000 business owners who had taken out a loan, 9,000 requested a deferral of their obligations. About 30,000 people have asked for a delay in servicing their obligations,'' Boris Vujcic said.

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As Poslovni Dnevnik writes on the 30th of March, 2020, the financial markets are in constant turmoil, the level of uncertainty is extremely high, and all this will require very careful management of budget financing, the governor of the Croatian National Bank, Boris Vujcic, said.

''The Croatian National Bank (CNB) has taken a number of measures to maintain exchange rate stability, strengthen the financial system's liquidity and revive the government bond market. The main measures were promptly announced to the general public, with all the aims that were initially sought. In mid-March, we intervened four times on the foreign exchange market totalling €1.6 billion to stabilise it. That's what we've achieved, the exchange rate has now been stabilised. The second objective was to create additional, and partly longer-term, cheap liquidity. On regular and structural operations, we created 4.5 billion kuna of additional, mostly long-term liquidity for banks at a very low interest rate,'' said Boris Vujcic, according to a report from Vecernji list.

''We've placed the funds for banks for five years at an interest rate of 0.25 percent, and short-term loans are at an interest rate of 0.05 percent. Thirdly, since the additional liquidity created by banks didn't reach other financial institutions and threatened to freeze the government securities market, which would adversely affect the financing conditions of all domestic sectors, we intervened in regard to that market as well. The situation was such that when we announced our interventions, even the market for the highest quality German Government securities was under a huge amount of stress. At two auctions, we purchased 4.3 billion kuna in government bonds, which is the first time the CNB has acted in such a manner,'' Boris Vujcic went on to explain.

''Finally, given the need for additional funding from the state due to the package of measures released in the face of the COVID-19 epidemic, we reduced the reserve requirement last week, freeing up an additional 10.5 billion kuna. These amounts cannot be added together because they're different measures. While foreign exchange interventions convert kuna liquidity into foreign currency, the bank financing operation and the redemption of bonds create additional kuna liquidity, and lowering the reserve requirement rate gives banks existing liquidity blocked by central bank monetary measures. However, all of these moves were complementary and were aimed at preserving favourable financing conditions for all bank clients despite the economic downturn and huge disruptions affecting global financial markets, all while maintaining exchange rate stability,'' Vujcic said, adding that government funding would could facilitate the expected increase in private savings that will ultimately require secure investments. On the other hand, financial markets are facing constant upheaval, uncertainty is extremely high, and this will all require very careful management of budget financing, the governor noted.

''We're entering a health crisis from a position of considerable surplus in the current and capital account, in other words, we've got higher exports than imports, and higher capital inflows than capital outflows. We've used this surplus in recent years to repay foreign currencies and strengthen our foreign exchange reserves, which is our first shock absorber in a situation where exports fall. Although funding conditions have tightened for emerging markets, including the Croatian market, borrowing is still possible. We'll only spend more on reserves if the coronavirus crisis escalates. If that does happen, it will be a sign that our foreign exchange reserves have served a purpose and that we've been able to maintain domestic demand. The CNB's gross reserves, even after the foreign exchange interventions that stabilised the exchange rate after the outbreak of the epidemic, are in excess of €17 billion,'' Boris Vujcic assured.

''The foreign exchange assets of banks needs to be added to that, which amount to approximately five and a half billion euros, and they can serve the same purpose as foreign currency reserves. Foreign exchange sold recently are mainly in the foreign exchange assets of banks and therefore haven't disappeared from the country's financial system,'' Boris Vujcic concluded.

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ZAGREB, March 18, 2020 - Croatian National Bank (HNB) governor Boris Vujčić informed the government on Tuesday that the country possessed very high foreign currency reserves and that system liquidity was more than sufficient to ensure the cash flow for businesses.

Presenting the central bank's measures designed to mitigate the economic consequences of the crisis caused by the outbreak of COVID-19, Vujčić said that he expected a sharp but short contraction of economic activity, primarily as a result of efforts to contain the spread of the coronavirus.

There are forecasts that this situation will be relatively short, lasting three, six or eight months. Of course, the shorter the crisis, the lesser the impact on the economy, the HNB governor said.

Vujčić said that the HNB had prepared three groups of monetary policy measures.

One refers to the stabilisation of the kuna exchange rate and to ensuring foreign currency liquidity. In this context, Vujčić recalled that in the last four interventions, the central bank sold €1.63 billion to commercial banks so as to stabilise the kuna exchange rate at 7.57 per euro.

Foreign currency reserves stand at €19 billion.

The second set of measures focuses on making sure that there is enough kuna liquidity and therefore the central bank has conducted structural and repo operations. On Monday, 750 million kuna was injected into the banking system as a short-term measure, plus 3.8 billion kuna as a long-term measure for a period of five years and at an interest rate of 0.25%.

The third group of measures refers to support to the stability of the state securities market through the purchase of government bonds.

If Croatia were a member of the euro area, some of these measures would not have to be implemented, said Vujčić.

We would also have access to the European system of monetary stability, where €500 billion is available, he said.

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