Government bond yields are a direct measure of a country's risk, meaning the higher the country risk, the greater the pressure on interest rates to rise, said Bohacek.
If Croatia's risk falls thanks to responsible measures the Croatian government intends to take, interest rates will fall as well, the HUB official said.
The stability of interest rates hinges on Croatia's risk premium, which is something the country has no impact on and actually depends on how foreign investors and governments perceive Croatia's risk and its ability to cope with the recession, he said.
In this context, the revision of the state budget and all other steps to be taken by the Ivo Sanader cabinet can produce effects and these steps are subject to external assessment and will provide the basis on which Croatia's risk premium will be determined, he explained.
Before the outbreak of the crisis, the premium on Croatia's country risk was below 100 base points to reach 600 at one time. It is now below 460 points, Bohacek said reiterating that Croatia's banking sector was still completely stable.
In addition, Croatia still has a sound loan growth of 10-12 percent.