The spillover of the increase in key European Central Bank interest rates on financing conditions in Croatia continued in February, with banks mainly raising interest rates, the Croatian Central Bank (HNB) reported in its latest monthly bulletin.

The average interest on first-time loans to non-financial enterprises reached 3.7 percent, up 53 basis points from January, the HNB said, adding however that corporate lending still continued to increase, by 20.1 percent on the year.

Household lending also increased, with the average interest on first-time housing loans stable at 2.9 percent, while increasing to 5.6 percent on non-purpose cash loans.

A stronger increase in housing loans can be expected in the months ahead following a new round of subsidised housing loans as of mid-March, but interest rates are not expected to increase significantly as subsidised housing loans are contracted at lower interest rates than the market average, the HNB said.

Interest rates on household and non-financial corporate loans have been increasing since the second half of 2022.

In an effort to curb inflation, the ECB in mid-March raised key interest rates by another 50 basis points. The ECB’s most important interest rate, on deposits, amounts to 3 percent as of March. This increase has affected also the Croatian market, where the average interest on first-time non-financial corporate loans increased by 200 basis points since last July, when the ECB started raising key interest rates.

The interest on time deposits in February was 15 basis points higher than in January (1.6 percent), which contributed to a spillover of funds from overnight to time deposits, the HNB said.

The subscription of government bonds, which stood at €1 billion by the end of February, resulted in a strong drop in household deposits. The average interest on first-time time deposits reached 0.5 percent in February, 30 basis points more than in January.