January 22, 2015 / 1:21 PM / 3 years ago

UPDATE 1-Croatia central bank sells 326.2 mln euros to prop up kuna

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ZAGREB, Jan 22 (Reuters) - Croatia's central bank sold 326.2 million euros ($380 million) to commercial banks on Thursday in its first intervention in the local foreign exchange market this year to counter downward pressure on the kuna currency.

The bank said the average rate at the auction, held after days of mounting market pressure over households' Swiss franc loans, was to 7.6977 kuna per euro. The kuna firmed a touch to 7.6980 against the euro from 7.7180 before the transaction.

The government proposed this week to fix the rate for mortgage loans to 6.39 kuna per franc for one year to ease pressure from housing loans in the Swiss currency . Parliament will vote on the issue on Friday.

"The central bank obviously wants to show that it favours the kuna to remain below the 7.70 rate per one euro. The amount it sold could be sufficient to ease the depreciation pressure a bit, but I cannot exclude that demand for euros will persist in the near future," a dealer at a major local bank said.

Market participants said the kuna's easing in recent days, which pushed it to an 11-year low, was largely in response to last week's surge in the Swiss franc's value and to the usual increase in corporate demand for euros for foreign payments at the start of the year.

Swiss franc mortgages became popular in central and eastern Europe during the credit boom of the 2000s because of their low interest rates. ($1 = 0.8603 euros) (Reporting by Igor Ilic; Editing by Zoran Radosavljevic and Ruth Pitchford)

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