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Zagreb - Croatian National Bank (HNB) Governor Boris Vujčić said in Parliament on Wednesday that inflationary pressure is abating, although it remains significant, rejecting claims by some opposition MPs that accession to the eurozone has contributed to inflation growth.
"It is not true that Croatia's accession to the eurozone has contributed to the higher rate of inflation. Quite the contrary, had we not entered the eurozone the inflation rate would be higher and not lower, as shown by the experience of other countries," Vujčić said while presenting the HNB's report on the financial situation, price stability and monetary policy in 2021 and the first half of 2022.
"The inflation rate is 26% in Hungary, 18% in the Czech Republic and 16% in Poland, so much for that," the central bank governor said, stressing that Croatia's accession to the eurozone was also helpful with regard to capital markets, public debt and cost stability.
Vujčić said that the inflation rate had started to slow down at the beginning of this year, reaching 10.5% in March. March was the fourth consecutive month to see a decline in the inflation rate, after it peaked at 13% in November 2022.
Fight against inflation to extend into 2024
"Our forecast is that inflation will continue to decline towards the end of the year, when it is expected to be around 5%. But the fight against inflation is not over and is certain to extend into 2024, when it is expected to come to our target level of 2%," Vujčić said.
Inflationary pressure is weakening in particular due to declining prices of energy and raw materials on the global market and the gradual removal of bottlenecks in global supply chains, which is alleviating shortages of individual goods, he said.
However, core inflation remains stubborn, and interest rates will continue to be increased in order to continue to reduce inflationary pressure. "The next meeting of the European Central Bank's Governing Council is next week, and in my opinion we have no choice but to continue to raise interest rates," Vujčić said.
Responding to a question from MP Zvonimir Troskot (Bridge) as to where foreign currency reserves had disappeared, Vujčić said: "They did not disappear. They are held where they were held before, only now they are called differently -- net financial assets of the HNB, in accordance with the eurozone accession procedure."
Opposition criticises HNB and governor
Ahead of a debate on the financial situation, price stability and monetary policy, the Opposition in the Croatian Parliament criticised the Croatian National Bank (HNB) and its governor Boris Vujčić over a "disastrous" monetary policy.
Ružica Vukovac (Righteous Croatia) said that responsibility for Croatia's economic decline rested solely with the HNB and its disastrous monetary policy.
"The long-term kuna exchange rate stability, maintained artificially on the lower value of the euro in Croatia, required huge financial allocations from the economy's revenue," Vukovac said, adding that this was the reason why the government was unable to curb price growth.
Katarina Peović (Workers' Front) said long-time HNB analyst Mirjana Čerin had pointed to the extent of damage caused to the Croatian economy and population by the HNB's "anti-people" policy of kuna overvaluation, adding that her party would advocate that Vujčić and all the other HNB governors be held criminally liable for that one day.
"Your policy has caused more than €138 billion in damage to the Croatian economy and people," Peović said in a message to Vujčić, who was expected to present reports on the HNB's work in the parliament.
Damir Bajs (Focus/Reformists) said the HNB had failed to fulfil its main mission, keeping prices stable. "We have a growing inflation and a declining standard of living," he said, dismissing as unacceptable statements that the HNB had nothing to do with that.
Zvonimir Troskot (Bridge) wondered where foreign currency deposits in the amount of €25 billion had gone. "That is an entire state budget that has turned overnight into a nonfinancial monetary asset that has disappeared and no longer exists," he said.
Marijan Pavliček (Croatian Sovereignists) commented on Vujčić's statements on the occasion of euro introduction, advising citizens to buy products in shops that offered them at lower prices. "Find me a retail chain where prices have not gone up by 20-25% over the past year, find me a shop where prices have gone up 0.2-0-4%, which is how much Vujčić said prices would go up due to the changeover to the euro," Pavliček said.
Sandra Benčić (We Can!) said that corporate margins were the key factor that had contributed to inflation in Europe and Croatia, wondering what mechanisms the HNB has to reduce the continuing price growth in sectors such as food and to stop further margin growth.
Boris Lalovac (SDP) stood up for the government and PM Andrej Plenković, noting that they were adopting anti-inflation measures on a daily basis and doing the central bank governor's job. "When have you seen the governor step forward and do his job," he asked.