The HNB did not allocate any funds at its regular weekly repo auction on Feb 18, the central bank report. The trend has been sustained for more than a year as there has been no additional short-term liquidity demand on part of the commercial banks since mid-Dec 2017. Factors suppressing demand are likely related to the high liquidity in the local banking system, alongside the overall high costs of this type of source of liquid funds, in our view. Higher demand for HRK can be expected during the summer season and the peak of the tourist arrivals, but we note this was not the case in 2018.
The HNB’s weekly repo auctions date from September 2015 when the newly adopted CHF-loan conversion legislation resulted in necessary short-term liquidity injections in the banking system. Initially, interest was high, but in a few months it started to subside and finally ended at zero level throughout 2018.