IFIS Index

IFIS index for the first quarter of 2017: Financial conditions continue to ease  

The values of the IFIS index indicate a further mitigation of financial conditions. Accordingly, the financial conditions on the Croatian market in the first quarter of 2017 were the mildest ever recorded since we have been monitoring the index movements. Nearly all index components contributed to the alleviating financial conditions, but the largest contribution came from domestic variables, primarily those linked to the banking system. The expansive monetary policy of the Croatian National Bank (CNB) has led to a record liquidity of the financial system so that the daily liquidity surplus, which was 2.5 times higher in the first quarter of 2017 than in the last quarter of 2016, contributed the most to the improved financial conditions. The exceptional liquidity of the financial system was accompanied by a decrease in interest rates on loans and deposits, both in local and foreign currency, or with currency clauses. Improved macroeconomic indicators in the last year, especially those regarding government finance and newly introduced structural operations of the CNB, have led to a decrease in government bond yields, which also contributed to the easing financial conditions. Among the foreign variables, the largest contribution came from continued positive trends on foreign stock markets, as measured by the DAX and S&P 500 indices which in March reached record levels as a consequence of reduced risk aversion.
What is IFIS?

IFIS is a monthly financial conditions index developed by the Institute of Economics, Zagreb. It provides timely information on the average financial conditions in the economy which can serve as a significant determinant of projections and, consequently, of future economic activity. Financial conditions estimates can be useful for economic activity projections, macroeconomic policy evaluation and financial investment decisions.   

How is IFIS calculated?

Overall financial conditions are influenced by a number of variables. The variables are selected so as to reflect changes in the local and international financial environment, taking into consideration the specific features of the local market. To be able to estimate the developments in financial conditions based on the large clusters of variables, it is necessary to extract data from various parts of the financial system into a simple and easily understandable index. The IFIS index is calculated as the pondered average of variables that represent the fluctuations in the financial system, using the frequently applied method of principal components analysis. IFIS is standardized so that its arithmetic mean equals zero (which is the average index value in the entire observed period), while the standard deviation equals one. Positive values represent harsher financial conditions than the average, and negative ones represent milder financial conditions compared to the average. An increase in the index indicates harshening financial conditions, while a decrease indicates milder financial conditions.

The development of the IFIS index was supported by the EIZ Club, Agrokor, Atlantic and Privredna banka Zagreb.