The HNB did not allocate any funds at its regular weekly repo auction today, which has been the case for nearly year and a half, the central bank reported. In fact, demand from commercial banks for additional short-term liquidity has been non-existent since mid-December 2017. This is due to the high liquidity in the banking system, in our view, but also, as some local analysts have previously pointed out, to the overall high costs of this type of source of liquid funds. In addition, usually there is more demand for local currency during the peak the tourist season. Note however that this was not the case in 2018.
The HNB has been carrying out weekly repo auctions since September 2015 when the adopted CHF-loan conversion legislation necessitated the injections of short-term liquidity in the banking system. Banks showed higher interest in obtaining liquidity during the first months of the repo auctions’ launch, but it gradually faded out and the demand was at zero level in 2018. Note that on Dec 11, 2018 the HNB allocated HRK 1.397mn in the sole for last year structural repo operation at a repo rate of 1.2%, which indicated that commercial banks were in need of long-term sources of HRK-liquidity.