June the 13th, 2021 - Croatian producer prices have risen by as much as 7.6 percent, quite a significant bit more than the ECB's initial predictions would have suggested.

As Marina Klepo/Novac writes, back in May, Croatian producer prices rose by as much as 7.6 percent when compared to the same month last year, according to the CBS. This is the third month in a row that a significant increase in the price of products supplied by Croatian producers has been recorded; in April, annual prices increased by 5.8 percent, and in March they rose by 3.5 percent.

However, when energy is excluded in that, the prices of industrial products rose by 1.3 percent back in May, which is also mainly related to the growth of raw material prices. This fits in with the dominant interpretations that current inflationary pressures are most affected by rising energy prices and will not have a lasting effect. Manufacturers of furniture (5.3 percent), metals (5.2 percent), tobacco products (4.9 percent) and paper and wood products (4.3 percent) stand out from the activities that significantly increased the cost of production.

The redemption of bonds

How much Croatian producer prices spilled over to those in retail will be known only on June the 16th, when the CBS publishes the data on that. The acceleration of inflation in April to 2.1 percent from 1.2 percent a month earlier, the CNB explains, "was largely the result of an increase in the annual growth rate of energy prices, due to the positive base effect of the period."

Here in Croatia, as it has been in most of the world, a higher inflation rate is expected than previously thought. The first Eurostat data show that consumer prices in the Eurozone rose by 2 percent in May, with the highest occurring in Luxembourg, where they increased by 4 percent, and then in Germany, for example, where they increased by 2.4 percent.

At a recently held meeting, the ECB released its brand new economic forecasts, including an upward revision of inflation, but President Christine Lagarde stressed the temporary nature of these inflationary pressures, as well as the continuation of a "significantly faster" bond buyout plan in order to boost the Eurozone's recovery.

Transient growth... or not?

Leaving Croatia and the Eurozone aside for a minute, investors are primarily worried about inflation in the United States, given a recent announcement that it jumped to 5 percent in May, the most since back in crisis-dominated 2008. That’s even more than expected (analysts in a Reuters poll estimated it at 4.7 percent) and well above the Federal Reserve’s target levels of about 2 percent. Those who believe that, like the ECB, the US Federal Reserve will not tighten its monetary policy, point to the "pandemic" impact on price growth as an argument.

Products such as furniture, used cars, car rentals, hotel accommodation and plane tickets became more expensive. But core inflation, excluding energy and food, rose 3.8 percent in May, the most since way back 1992, and some analysts see that as a cause for legitimate concern.

For more on Croatian producer prices, make sure to follow our business section.

ZAGREB, September 12, 2020 - Following the establishment of close cooperation with the Croatian National Bank (HNB), the European Central Bank will take direct supervision of eight banks in Croatia, the HNB said in a statement on Friday.

"The European Central Bank (ECB), after establishing close cooperation with Българска народна банка (Bulgarian National Bank) and Hrvatska narodna banka (Croatian National Bank) and assessing the significance of the countries’ banks, announced today that it will start directly supervising five banks in Bulgaria and eight banks in Croatia," the HNB quoted the ECB as saying in a press release.

In Croatia the ECB will be supervising the three largest banks - Zagrebacka Banka, Privredna Banka Zagreb and Erste & Steiermaerkische Bank and it will also supervise PBZ Stambena Stedionica, Raiffeisen Bank and Raiffeisen Stambena Stedionica, Sberbank and Addiko Bank.

The ECB's supervision of Addiko Bank's Croatian subsidiary is part of its plan to soon start directly supervising that Austrian banking group.

"The ECB will also directly supervise two new institutions, DSK Bank AD in Bulgaria as of 1 October and Addiko Bank AG group in Austria as of 7 October. The supervision of Addiko Bank AG group will include supervision of its subsidiaries Addiko Bank d.d. in Slovenia and Addiko Bank d.d. in Croatia," the ECB said.

The ECB in July established close cooperation with the HNB and the Bulgarian National Bank, and now it will take direct supervision of five banks in Bulgaria and eight in Croatia, countries that have both applied to join the euro zone.

In particular, the ECB will be responsible for directly supervising four Bulgarian and seven Croatian subsidiaries of existing significant banking groups headquartered in Belgium, Greece, Italy and Austria. This ensures that the ECB fulfils the regulatory requirements that it must directly supervise, at an individual level, all banks belonging to significant groups, and at least the three most significant banks in each country.

The ECB will also be responsible for the oversight of the less significant institutions and in charge of the common procedures for all supervised entities in the two countries.

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ZAGREB, August 28, 2020 - The European Central Bank and the Croatian National Bank (HNB) have agreed to extend a euro liquidity line by six months until the end of June 2021, the HNB said on Friday.

The ECB and the HNB established a currency swap in April under which the HNB can borrow up to €2 billion from the ECB in exchange for Croatian kuna.

The swap was agreed to, to provide euro liquidity to Croatian financial institutions to address possible euro liquidity needs in the presence of market dysfunctions due to the COVID-19 shock. The euro liquidity line had been agreed initially until the end of 2020.

The maximum maturity for each drawing is three months.

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ZAGREB, Aug 7, 2020 - By joining the European Exchange Rate Mechanism II, Croatia has pledged to make additional moves to mitigate the risks on its journey to the euro area and create conditions for a more efficient allocation of capital to productive firms instead of rent-seekers, shows a European Central Bank analysis.

The Croatian National Bank (HNB) said on Friday that the ECB published an analysis on its website, on the occasion of Croatia and Bulgaria's accession to the ERM II, which says, among other things, that Croatia has pledged to implement additional reform measures with the aim of preserving economic and financial stability and achieving a high degree of sustainable economic convergence.

Those reforms should mitigate risks under ERM II with a view to subsequent euro adoption because a key lesson learned from the global financial crisis is that, in the run-up to euro adoption, a high level of institutional quality and good governance help to reduce the risk of a build-up of excessive imbalances, the HNB says in a press release.

The ECB analysis also underlines that the reforms conducted within ERM II create preconditions for allocating capital to productive firms instead of rent-seekers.

The HNB notes that the ECB analysis also stresses that Croatia is catching up in terms of income levels relative to the rest of the European Union and that its price levels relative to the euro area are now well in line with its income levels relative to the euro area. While such levels remain significantly below those of the euro area, this does not in itself constitute an impediment to participation in ERM II, the HNB says quoting the ECB analysis.

In this regard, a more important prerequisite for successful participation in ERM II is that price levels are commensurate with income levels and, more generally, with the economic fundamentals of the country, reads the analysis.

Government says that it is not possible to make any changes to the law on the Croatian National Bank without prior consultations with the European Central Bank.