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By Igor Ilic
ZAGREB, Oct 20 (Reuters) - Croatia’s central bank cut its lombard and discount rates on Tuesday to take pressure off local interest rates and the kuna currency.
“The lombard rate has been reduced to 2.5 percent from 5.0 percent, while the discount rate has been reduced to 3.0 percent from 7.0 percent. This is done within our policy of securing enough liquidity in the banking system and for keeping the exchange rate stable,” the central bank said in a statement.
Local interest rates and the kuna have come under pressure recently following the enforced conversion of the country’s stock of Swiss franc loans into euros.
Croatia’s central bank uses its exchange rate against the euro mostly to control monetary policy and rarely makes decisions about interest rates.
“We want to limit pressures on interest rates and the kuna expected due to an increased demand for the kuna amid the conversion of the Swiss franc loans into euro-denominated ones,” the statement said. It also said the central bank had cut interest rates on its short-term liquidity loans.
“Interest rates on the three-month liquidity loans have been reduced to 3.5 percent from 5.5 percent, while on loans longer than three months it has been cut to 4.0 from 6.0 percent,” the statement said.
Last week the central bank said it might have to intervene on the local exchange market between mid-November and mid-December to prop up the kuna against the euro . The bank keeps the kuna in a managed float regime allowing mild fluctuations of roughly up to 5 percent. (Reporting by Igor Ilic; Editing by Mark Heinrich)