The Council also adopted a number of decisions necessary to launch open market operations as a new liquidity management instrument which will reduce financial market fluctuations and stabilise interest rates.
The Council also adopted several decisions aimed at further liberalising financial relations with other countries.
The central bank is expected to launch open market operations in early April as planned. Three types of operations have been envisaged -- regular open market operations, smooth adjustment operations, and structural operations.
Regular operations will be carried out once a week as repurchase operations via standard auctions. The Finance Ministry's treasury notes in the domestic currency will be accepted as collateral.
Smooth adjustment operations will be carried out ad hoc to increase or withdraw liquidity and smooth unexpected interest rate fluctuations on the market. Their frequency and maturity are not standardised. They will be carried out via repurchase operations, direct purchase or sale of securities and foreign currency, foreign currency swaps, and a limited number of participants at auctions.
Structural operations are envisaged for long term liquidity adjustment.
At first the open market operations will be modest in scope and consist of repurchase operations aimed at managing liquidity. In time, however, the repurchase rate is expected to become the reference rate on the Croatian financial market.
The ceiling in the interest rate range will be the interest rate on Lombard loans, which may be used at the end of every work day, and not only five days a month as until now, with treasury notes as collateral to the amount of 90 percent of nominal value, with overnight maturity. The bottom limit will be the interest rate on bank deposits with the central bank.
To increase operation flow during the work day, in July banks will introduce the delivery versus payment system and the gross settlement principle. Banks will be able to use one-day loans with the same collateral envisaged for Lombard loans. One-day loans will be approved within the settlement limit and will be interest-free, but they will have to be repaid by the end of the work day. In the contrary, this will be automatically considered a request for a Lombard loan to the amount of account overdraft and will be treated accordingly.
Under the central bank's latest decision on interest rates and fees, interest on Lombard loans remains 9.5 percent, while for deposits with the central bank the central bank will pay 0.5 percent annually. For appropriated funds from obligatory reserves in the domestic currency (70 percent), the central bank will pay banks 1.25 percent annually, while interest will not be paid on the part of obligatory reserves which banks keep on their accounts.
The central bank's Council also adopted a decision liberalising for domestic residents terms and ways of investing in foreign securities and shares in foreign investment funds. The Council also changed terms under which nonresidents invest in domestic securities and shares in domestic investment funds or issue short term securities in Croatia.