Interest Rate Exposure of Households in Croatia: A Simulation of the National Reference Rate

The 2022-23 monetary policy tightening of the European Central Bank led to a strong rise in bank credit interest rates in the euro area. However, the regulatory specifics of the Croatian banking system, namely the existence of the National Reference Rate and the interest rate limit on variable rate loans have so far muted the effects of the increase in key ECB interest rates. Towards the end of 2023, while the interest rates on new household credit and term deposits have significantly increased, the effect on regulatory benchmarks is absent and expected with a time lag. This paper uses an algorithmic approach to univariate time-series modelling to estimate three scenarios, differing in the intensity of the rise in the volume and interest rates on new term deposits. The estimated series are then used in stock-flow consistent calculations to simulate three possible paths of the National Reference Rate over a three-year horizon. A strong rise in the National Reference Rate of 210 basis points towards the end of 2026 is associated with a scenario which entails the most intense rise in term deposits, such which would result in almost three quarters of all deposits being in the form of term deposits, the level which was previously observed a decade ago. The used approach could be employed to provide inputs to stress-testing and sensitivity analyses.