Croatia's central bank (HNB) purchased €188mn on the foreign exchange market on June 6 at an average HRK/EUR rate of 7.4162 from local banks in order to alleviate the appreciation of the local kuna currency. 

Croatia's better-than-expected macroeconomic performance and higher-than-expected tourism revenues have been supporting the local currency. Domestic financial markets are expected to continue to perform well despite the unexpected coalition split last month.

This was the first FX intervention by the HNB in 2017. The central bank purchased a total of €869mn in fifth direct interventions into the domestic FX market in 2016. At the previous intervention, the HNB purchased on December 12 €438.3mn on the domestic market at a price of 7.5647.

The HRK/EUR rate rose to 7.4110 as of around 10am local time from 7.3810 before the intervention, according to Reuters data.

The HRK/EUR rate fell to 7.4008 on June 5, the lowest level since September 2012, according to European Central Bank data. The exchange rate rose by 0.1% d/d to 7.4065 on June 6 following the central bank’s intervention.

The HRK/EUR rate stood at 7.5545 at the end of 2016, down from 7.658 at end-2015.

The Croatian central bank continues to pursue an accommodative monetary policy and exchange rate stability, and to encourage kuna lending by providing long-term kuna liquidity, the International Monetary Fund (IMF) said in December.

Croatia has been a member of the EU since 2013, but is not yet a member of the euro or Schengen zones. The Croatian central bank keeps the kuna under managed float against the euro.

Croatia should launch talks to adopt the euro only after the Adriatic country leaves the European Union’s excessive deficit procedure (EDP), central bank governor Boris Vujcic said last month.

All three major rating agencies, Moody’s, Fitch and Standard & Poor's, rate Croatia at two notches below investment grade with stable outlooks.

Last month, the Croatian finance ministry also sold €1.25bn worth of 10-year Eurobonds with an actual yield of 3.20% and a coupon rate of 3%.