Croatian National Bank Lifts RRR 100bps to 14.00%

The Croatian National Bank increased the bank reserve requirement rate by 100 basis points to 14.00% from 13.00% previously; effective from the 12th of October.  The Bank said of the move: "Through this measure the central bank intends to withdraw from the banking system about 3.1 billion kuna (2.6 billion from the kuna component and 0.5 billion from the foreign exchange component of the reserve requirement).The purpose of withdrawing excess liquidity from the system is to stabilise the kuna vs. euro exchange rate, i.e. to ease depreciation pressures."  The Bank also noted it would "take measures to prevent excessive exchange rate fluctuations not based on real economic movements."

Previously the Croatian National Bank decreased its discount rate by 200 basis points to 7.00% and before that, last raised the discount rate by 450 basis points to 9.00% from 4.50% in December 2007.  The discount rate is used for determining penalty rates and the highest possible interest rates applicable in business contracts.  According to IMF data, Croatia saw economic growth of 0.13% in 2010, while annual consumer price inflation was 2.6% for the year.  The Croatian Kuna (HRK) has weakened by about 9% since the end of April, and the USDHRK exchange rate last traded around 5.45 

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