Croatia seeks to freeze Swiss franc's rate

Swiss one franc coins are seen in this illustration picture taken in Zurich January 19, 2015. German bond yields hit record lows on Friday while fears about Greek banks sent the country's borrowing costs spiralling - signs of the fallout from the Swiss National Bank's shock decision to scrap its currency cap. A surge in the Swiss franc after the SNB abandoned its 1.20 euro limit on Thursday saw investors flee equities and other risky assets, parking money instead in top-rated bonds. REUTERS/Arnd Wiegmann (SWITZERLAND - Tags: BUSINESS POLITICS) (REUTERS)

Zagreb (AFP) - Croatia wants to help borrowers affected by the surging value of the Swiss franc by fixing its exchange rate against the local currency for one year, Prime Minister Zoran Milanovic said on Monday.

"I decided that the government will send to parliament amendments to the Consumer Loan Act that would fix the Swiss franc rate at 6.39 kunas (0.83 euros, $0.96) as it was before the franc's dramatic jump last week," Milanovic told reporters.

The decision would apply "for the next year, while financial institutions will bear the costs," he said.

Some 90 percent of Croatia's banking sector is controlled by foreign banks.

The government's move is intended to ease the impact of a stronger franc on the "financial fate of tens of thousands of families who may sleep peacefully tonight without looking at the exchange rate," Milanovic said.

Switzerland's central bank decided on Thursday to end a three-year bid to artificially hold down the franc's value. The move wreaked havoc on global markets and bankrupted several foreign exchange traders.

Since last week Croatia's kuna currency fell by nearly 17 percent against the Swiss franc.

More than 100,000 people in Croatia, a country of 4.2 million, took out loans denominated in Swiss francs, almost three-quarters of which were to buy homes.

Some 60,000 Croatians still have loans in Swiss francs and the Franak association of Croatian borrowers estimates that the lives of up to 300,000 people could be affected.

Swiss franc loans became popular in several central European countries in the 2000s when they offered lower interest rates than local currencies.

Loans in Swiss francs taken by Croatians amounted to some three billion euros as of last September, according to the Croatian Central Bank (HNB) figures.

Croatia joined the European Union in 2013, but has yet to adopt the euro.

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