Monetary Contraction And Rising Interest Rates In The Croatian Economy – Has The Rise In Interest Rates In Croatia Contributed To The Collapse Of Inflation?

The paper analyses the impact of rising interest rates on loans and deposits of households and businesses in Croatia on the gradual decline in domestic inflation rates during the inflationary episode that the Croatian economy went through in the period from 2021 to 2024. The aim of the research is to determine the extent to which monetary contraction has contributed to lowering domestic inflation rates in this inflationary episode based on methods of descriptive statistics and to analyse the costs of this monetary contraction. Even if the claim that higher interest rates have helped to reduce the inflation rate is justified, we believe that this contribution has been very modest. On the other hand, the cost of monetary contraction was very high, and the amount paid by the CNB to the commercial banks in 2023 and 2024 was around one billion euros. This interest expenditure is a direct consequence of joining the Eurozone, i.e. handing over monetary policy to the ECB, and could have been significantly reduced if the CNB had continued to control the minimum reserve ratio. In addition, by controlling the minimum reserve ratio and other monetary policy instruments, the CNB could achieve a stronger monetary contraction than was achieved in Croatia through the ECB's monetary policy.