Croatian Central Bank (HNB) Governor Boris Vujcic said on Friday that the central bank could address the issue of inflation within interest rate and exchange rate policies, warning however that their manoeuvring space was limited.

The actions within the interest rate segment are restricted by the European Central Bank (ECB) policies and when it comes to the exchange rate, one should take care of the competitiveness of Croatian exports, the governor explained.

He elaborated that when it comes to interest rates, as long as the ECB has low interest rates and even negative ones, the space for the HNB to raise interest is limited, since banks can be financed at the ECB through their mother banks.

Considering the exchange rate policy, Vujcic said that one can allow appreciation, which would lead to reducing the pressure of import prices, however, it could also mean the weakening of the competitiveness of Croatian exporters.

The inflation pressure is primarily the result of rises in prices of energy and food, and possible interventions are within the remit of the state, he added.

Commenting on the real estate market, he said that 50% of transactions are in cash without any loans, and that the rising prices on that market are mostly due to high demand by buyers from abroad.

Interest rates in Germany and Slovenia are negative and banks are paid to hold deposits. Therefore deposit holders take that cash and invest it in real estate, which pushes the inflation upward, Vujcic said.