Vujčić: The government’s influence on monetary policy is unacceptable

The Governor of the Croatian National Bank (HNB) Boris Vujčić stated in an interview on Saturday that any influence of the government on monetary policy is unacceptable.

When asked about what he supported in a recent conversation with leaders of MOST regarding the establishment of an economic council and a monetary committee, and whether he agrees to a lesser independence of the HNB, Vujčić said that there was no discussion about the monetary committee, nor does he understand what that would be.

– I do not know that such a thing exists in other countries, said the governor, adding that there is something called a currency board that irrevocably fixes the exchange rate, for example, in Bosnia and Herzegovina. However, he says that would be a bad solution.

– There was no talk of any influence of the Government on monetary policy, nor would that, of course, be acceptable. There is a clear provision that the monetary authority is not allowed to receive instructions from anyone, emphasized Vujčić.

He stated that there was talk about an economic council, which exists in various forms in many countries.

– I believe that a good role of such a council would be to design a long-term strategy for economic policies and to test certain legislative solutions, said Vujčić, citing as an example the adoption of amendments to the Consumer Credit Act, where such a council would conduct an analysis of the quantitative effects of the law and inform the Government with an analysis that would propose legislation based on that.

– I believe that this would improve the quality of legislative solutions, that is, policies, said the governor of the HNB.

In an extensive interview for a daily newspaper, Vujčić also emphasized that the announced structural repo operations are not a major shift in monetary policy, nor the beginning of money printing.

– Monetary policy in Croatia is extremely expansive, but its expansiveness, along with existing structural limitations and due to the level of indebtedness, is not crucial for initiating a healthy investment cycle. However, there is room for encouraging greater kuna lending, said Vujčić.

He also noted that structural repo operations will be conducted in such a way that the fundamental financial stability, which is the stability of the exchange rate, is not jeopardized.

Vujčić emphasized that this is not a major shift in monetary policy, or the beginning of money printing, but rather a one-time operation equivalent to a small reduction in the reserve requirement ratio, which the HNB has continuously done.

This week’s decision by the U.S. Federal Reserve to raise interest rates was assessed as a logical and expected beginning of a cycle in the U.S., stating that the effect of this on the borrowing costs of developing countries, including Croatia, will depend on market expectations regarding the future pace of interest rate hikes by the Fed.

– In any case, past experience shows that in a situation of tightening Fed monetary policy, the spillover effects on developing countries are not necessarily linear, meaning the impact depends on the macroeconomic stability and economic strength of the country. Those countries that are more vulnerable may feel a stronger effect, concluded the governor of the HNB.