Boris Vujčić.jpg
Photograph: HINA / Zagrebačka burza / mm

Croatian National Bank (HNB) governor Boris Vujcic said in Saturday's Jutarnji List daily that any government influence on the monetary policy was unacceptable.

Asked what he had supported in recent talks with the Bridge party regarding the establishment of an economic council and a monetary committee and if he would agree to less independence for the HNB, Vujcic said a monetary committee was not discussed and that he did not understand what that would be.

"I don't know that something like that exists in other countries," he said, adding that Bosnia and Herzegovina has a currency committee which irreversibly fixes the exchange rate but that it would be a bad solution.

"There was no talk of any government influence on the monetary policy nor would it be acceptable, of course. There is a clear provision that the monetary authority is not allowed to take instructions from anyone."

Vujcic said the talks with Bridge addressed an economic council, which exists in many countries in various forms. "I think a good role for such a council would be to define a long term strategy of economic policies and to test legislative solutions... I believe that would improve the quality of legislative solutions and policies." 

Vujcic went on to say that the structural repo operations that were announced were not a big about-turn in the monetary policy and the beginning of printing money. "The monetary policy in Croatia is extremely expansive, but its expansiveness, alongside the existing limits of a structural nature and because of high indebtedness, isn't crucial for launching a sound investment cycle. There's room, however, to stimulate higher kuna lending."

He said the structural repo operations would be carried out so as not to undermine the foundation of financial stability - exchange rate stability.

He said this week's decision by the US central bank (the Fed) to increase interest rates was logical and as expected. Its effect on the cost of borrowing by developing countries, including Croatia, would depend on market expectations of future increases of the Fed's interest rate, he added.

"In any case, past experience shows that when the Fed tightens its monetary policy, the spillover effects in developing countries aren't necessarily linear and the impact depends on a country's macroeconomic stability and economic strength. More vulnerable countries can feel a stronger effect," Vujcic said.

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