"Croatian National Bank Governor Boris Vujcic said on Monday that inflation might be the most serious potential "cost" of introducing the euro, however, this year, that influence on the total inflation rate could be less than 10%, so he believes this isn't something to be overly bothered about," state agency Hina said on Monday.
Vujcic added that the rest of inflation will be generated from entirely different sources, primarily the prices of energy. He expects that the first half of this year will see strong inflationary pressure whereas “deflating” is expected in the second half.
Vujcic said that the best prevention against prices increasing is competition, adding that state intervention is only justifiable where monopolies exist. In the months prior to and after introducing the euro, consumers have to avoid those who increase their prices and buy from those who don’t, he said, believing that the best protection against price increases is showing prices in both kuna and euro.
With regard to losing monetary sovereignty once Croatia enters the euro area, Vujcic recalled that the central bank has been maintaining a fixed exchange rate since the 1990s.
Hence, it is not using it actively as a monetary policy instrument, considering that a 10 percent depreciation of the kuna against the euro, due to the high level of eurosation of the economy and households, the debt for all sectors in Croatia would increase by more than HRK 50 billion whereas appreciation of the kuna would disrupt the Croatian economy’s competitiveness, that is exports, said Vujcic.
He revealed that fairly reliable data indicate that citizens are holding as much as 36 billion kuna (€4.8bn) in cash. He called on citizens to deposit cash in banks which would facilitate conversion once Croatia enters the euro area.
(€1 = 7.52 kuna)