Inflation has not peaked yet

ZAGREB, May 6 (2022) – Addressing a traditional conference of regional central bank governors in the northern Adriatic city of Rovinj on Friday, Croatian National Bank (HNB) Governor Boris Vujčić , said all central banks had revised down their growth projections for this year and inflation has yet to peak.

Last month, the HNB revised its growth projections for this year, forecasting real GDP growth of 3.2%, down from its previous projection of 4.1%, assuming the war in Ukraine does not does not last long and that energy prices gradually return to normal.

The HNB estimates that inflation would average 5.4% in 2022, after reaching 2.6% in 2021.

The government also recently revised its growth forecast for 2022 from 4.4% to 3.0% and an inflation rate of 7.8%.

“At the moment consumption is still good. We haven’t seen it slowing down. Inflation will continue to rise and it’s not peaking yet. We’re still waiting for the April figures. What will happen later will depend on the evolution of the However, the war has not yet had much impact on us. Nevertheless, the longer it lasts, the deeper the cumulative effects will be, “said Vujčić in his speech at the conference of governors of regional central banks, organized by the weekly Lider business.

He added that when inflation goes above 5.0%, it starts to affect expectations and spreads to more and more product groups. In Croatia, we have seen an increase in the number of products whose price has increased by more than 5.0%, he said.

“We cannot make real forecasts and it all depends on energy prices. However, inflation has nothing to do with the adoption of the euro as legal tender, as other factors affect the price development,” he said.

Regional bank governors discussed the repercussions of the Russia-Ukraine conflict and Sberbank’s resolution, with Vujčić saying that even though Croatia is the EU’s youngest member state, it has managed to convince Brussels to a resolution plan outlining what should be done with the subsidiary banks if the “parent bank goes into liquidation”.

“Sberbank turned out to be a good precedent for future cases in Europe and there will definitely be more,” Vujčić noted.

Governor of the Central Bank of North Macedonia, Anita Angelovska Bezhoska, said Europe expects slower growth this year and next.

Senad Softić from Bosnia and Herzegovina said his country had to review some parameters due to war and inflation, but the banking sector in Bosnia and Herzegovina was stable.

Central Bank of Slovenia Governor Boštjan Vasle said Slovenia’s economy had grown faster than the European average due to its milder epidemiological restrictions during the pandemic. He said the two main drivers of growth were exports and increased consumption. “Our current forecast is not so optimistic, but consumption is still strong,” he added.

Adrović: Intensive preparations for the introduction of the euro

Croatian Banking Association President Zdenko Adrović said that Croatia is preparing intensively for the introduction of the euro.

“The looming inflation and potential rise in interest rates raise new challenges for monetary policies and banks. But that’s not all, because all of this is happening as Croatia prepares intensively to introduce the euro as legal tender. Banks have a huge role in the whole process and that’s why it’s the main problem this year,” Adrović said, adding that the deadline was too short.

“Croatia will become a state with the shortest time to introduce the euro since joining the ERM II mechanism.”

The good news is that prices in the country are already closely linked to European prices, so joining the eurozone is a logical economic and political choice for the country which is largely euroized anyway, Adrović said.

For more information, see our policy section.

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