The Croatian central bank aims to introduce longer-term repo operations towards the end of February in an effort to provide longer-term kuna liquidity for the local banks, the central bank governor Boris Vujcic said on Thursday.
"The central bank will continue with expansive monetary policy which will be strengthened by structural repo operations. The idea is to provide kuna liquidity to the banks for the period of three to four years using state paper as collateral," Vujcic said in an interview.
Currently the central bank runs weekly reverse repo auctions which will continue as a standing facility. "We plan to hold two to four longer-term repo auctions this year. The stronger the fiscal consolidation, the more space we have for monetary policy actions," Vujcic said.
According to initial assessments, the longer-term repo auctions could be worth 3.0-4.0 billion kuna ($568.36 million), depending on demand.
A new centre-right cabinet is expected to emerge from a parliamentary vote on Friday. The Prime Minister-designate Tihomir Oreskovic has already announced his major goal will be to tame high public debt.
"Sustainability of Croatia's public debt is the biggest macroeconomic risk at the moment. The markets expect fiscal consolidation and reversal of the debt's rising trend. Also, what's expected is improvement of the business climate as a condition for higher growth," Vujcic said.
Croatia's public debt has reached 86 percent of gross domestic product at the end of 2015, a considerable portion of it denominated in euros. After six consecutive recession years since 2008, the newest European Union member's economy is seen growing in 2015 by around 1.5 percent, or even slightly more.
"We need less red tape, less para-fiscal charges on businesses and more efficient public administration," Vujcic said.
He said the central bank would firmly continue to preserve the stability of the national kuna currency against the euro
as a key anchor of financial and price stability. The central bank keeps the kuna in a managed float regime occasionaly intervening on the local foreign exchange market. He rejected the recently floated ideas by some economists of a weaker kuna and for the central bank to directly purchase state bonds to ease government borrowing.
"Croatia's economy is highly euro-ised, while the country has a speculative credit rating. It is totally unclear what positive effects such a policy might have without jeopardising the exchange rate stability," Vujcic said.