Croatian Central Bank (HNB) Governor Boris Vujcic said on Thursday the latest data showed inflation had for the first time started to decrease in October and there were indications it was reaching its peak.

“According to the latest available data, inflation started to decrease for the first time in October. That’s good news and a possible indicator that we are close to its climax,” Vujcic said at a national conference of economists.

The year-on-year inflation rate in September was 12.8%.

Vujcic said he expects the inflation rate to drop to between 6% and 7% in 2023 and to further decrease to 2% in 2024.

He said that upon accession to the euro area, the national monetary policy would not be able to do much in case of supply-related shocks, such as growing energy or food prices, because it could act only with regard to demand.

However, some of the inflation is also due to demand, and monetary policy reacts to it by increasing interest rates and reducing its own balance, that is, surplus liquidity in the financial system, which Vujcic said he was certain will happen next year.

Liquidity surplus in domestic financial system around HRK 80bn

Currently the liquidity surplus in the domestic financial system is around HRK 80 billion, he said.

Vujcic said that compared to other Central and Eastern European countries, both those outside the euro area and those in the euro area, Croatia has the second lowest inflation rate and much lower interest rates.

“The Finance Ministry’s short-term borrowing until 1 January is cheaper than borrowing by the finance ministries of countries with the A rating, so I see no problems, quite the contrary,” he said.

For example, at the last auction of kuna-denominated treasury bonds in October, the Finance Ministry issued treasury bonds for a period of six months at an interest rate of only 0.1% and for a period of one year at an interest rate of 0.2%, he said.