HNB’s Interest Rate Cut

Boris Vujcic, HNBLPJ Issue 154, 26 October 2015

The HNB Council decided to reduce its interest rates. The interest rate on Lombard loans was lowered from 5% to 2.5% annually and the discount rate from 7% to 3% annually.

The interest rate on short-term liquidity loans was cut from 5.5% to 3.5% for loans used up to three months and from 6% to 4% for loans used more than three months and the remuneration rate on the insufficiently allocated or maintained amount of reserve requirements was reduced from 12% to 8%.

With this move, the HNB, while continuing to pursue a policy of maintaining comfortable liquidity in the banking system and exchange rate stability, intends to contain upward pressure on money market interest rates and downward pressure on the exchange rate, expected due to an increase in demand for the Kuna, caused by liquidity issues due to the conversion of Swiss franc loans pursuant to the recently adopted Act on Amendments to the Consumer Credit Act.

The same reason applies to the reduction of the discount rate, which, while not having a significant impact on domestic monetary developments and no longer being used for the calculation of the statutory default interest rate, indicates an overall reduction in market interest rates.

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