March 28 (SeeNews) - The Croatian central bank said a recent increase of key interest rates by the European Central Bank (ECB) has started to spill over to the country's market.
“Despite the sustained modest activity in the domestic money market, the increase in key interest rates started to spill over to overnight interest rates on the Croatian money market,” the central bank said on Monday in a publication on economic, financial and monetary developments.
The governing council of the ECB decided on March 16 to increase key interest rates by 50 basis points. In accordance with the new decision, the interest rate on monetary deposits of credit institutions with the central bank has been set at 3.0% starting from March.
After the latest decision of the governing council came into force in early February, the overnight interest rate on the European money market reached 2.4% and held steady at that level until the end of the month, the Croatian central bank noted.
The six-month EURIBOR also continued to grow, reaching 3.3% at the end of February. Thus, in Croatia the overnight interest rate on banks’ demand deposit trading reached 2.1% at the end of February, up from 1.4% at the end of January, the Croatian central bank said. The interest rate on one-year Treasury bills of the Croatian finance ministry at the latest auction in the second half of February went up to 2.7%, from 2.5% in January.
As regards the long-term costs of government financing, the expectations of further ECB monetary policy tightening led to an increase in yields on long-term government bonds in the wake of the ECB governing council meetings held on February 2 both in the euro area and in Croatia, the Croatian central bank said.
“The increase in yields in Croatia was only slightly higher than the average in euro area countries, with the yields on Croatia’s longterm government bonds standing at 4.0% at the end of February, having risen 53 basis points from end-January. Amid ECB monetary policy tightening, the interest rates on bank loans in Croatia also rose, with those for loans to non-financial corporations continuing to grow faster than those for loans to households,” the central bank added.
Since the beginning of the cycle of increases in ECB key interest rates in July last year, the average interest rate on pure new loans to non-financial corporations rose by 150 basis points, to 3.2% in January.
Early this year, the demand for loans again generated by companies in the energy sector resulted in a further annual growth in corporate loans of over 20%.
The cost of household borrowing also rose by 110 basis points from the period prior to monetary policy normalisation and reached 4.7% in January.
Croatia joined the eurozone on January 1.