Governor Zeljko Rohatinski said he "did not advocate a de-pegging of the kuna". He, however, added that the current arrangement, which "permits the kuna to float against the euro within a 15 per cent 'price corridor', could not be preserved unless market forces were restrained".
"In order to stop appreciation we inject into the system higher and higher amounts of kuna. The system is sustainable, but the costs of sustaining it are higher and higher," the governor said in the interview which the Financial Times published on 7 June.
The governor's comments explained the central bank's decision three weeks ago to hike commercial banks' marginal reserve requirements to 40 percent, up from the previous standard of 30 percent.
"Central bankers are keen to protect the kuna's link to the euro, an asset in their effort to help Croatia adopt the euro. But Mr Rohatinski blamed foreign-owned banks - whose combined share of assets in the country's banking sector has risen to 91 per cent through a series of major privatisations - for introducing foreign exchange pressures through large-scale importation of euros from "mother banks" in the EU."
"Such external borrowing swells local banks' lending volumes and allows foreign owners to chase higher yields than those available on their home markets. But it also encourages the kuna to appreciate in value. In response, the central bank is forced to inject kuna into the market, holding the currency's value down, preserving the peg and guarding price stability in Croatia," Mr Rohatinski said among other things.