Instruments and Operating Arrangements
|Reserve Requirements||Standing and Nonmarket-Based Discretionary Facilities||Market Operations||Other Instruments|
|Armenia||Uniform ratio of 15% for all dram- and foreign-denominated deposit liabilities since end of 1994. Banks may choose which currency they will use to meet the requirement on foreign-denominated deposits. Reserve balances are averaged over a two-week period.||Overdraft facility: credit provided at a penal rate (30 basis points above the refinance rate).|
Directed credit: abolished in early 1995.
Credit auction: from January 1996 only collateralized credit auctions will remain. Treasury or central bank bills and Ministry of Finance promissory notes are accepted as collateral (privatization vouchers are not accepted as their price is not stable).
Collateralized credit auction: uniform price auction with minimum price to 3 prevent banks from pushing down bids. Held twice a week, with 28 days maturity mostly.
Credit obtained through auction can be rolled over only three times before it must be repaid.
|Limits on cash withdrawals (fees) imposed in March 1994 to halt the high inflation rate; phased out in 1995.|
Central bank’s foreign exchange operations: interventions mainly (80%) at the auction. In some months of 1995, the central bank used foreign currency sales as its main domestic monetary policy instrument.
|Azerbaijan||Uniform ratio of 15% for domestic and foreign currency deposits; banks may choose whether to bold foreign currency reserves in foreign or domestic currency; most banks choose foreign currency; lower requirement on interbank deposits, 5%; calculated on the basis of daily average deposit balances; no averaging of reserve holdings; unremunerated.||Overdraft facility: in late 1994, all automatic overdraft facilities were abolished.|
Refinance facility: credit provided to state-owned commercial banks not allowed to participate in the auction.
(Interbank) credit auction: open outcry method used; auctions conducted at Baku Interbank Currency Exchange (BICEX); only banks that meet prudential regulations are allowed to participate; the two largest banks are normally excluded from the auction; during March-December 1995, about 25% of total refinance credits were allocated through the auction.
(Interbank) credit auction: the supply of credit is adjusted dynamically as the auction proceeds, but amounts sold are usually consistent with central bank’s credit policies; in principle, held monthly with maturities varying from 3 to 180 days, although, in practice, auctions have been held less frequently.
|Foreign exchange sales at the BICEX also used as a monetary instrument.|
|Belarus||Uniform ratio of 12% apply to domestic and foreign-currency-denominated banks’ deposit, all in domestic currency since|
September 1995. No averaging of reserves.
|Directed credit: outstanding volumes are still significant. National bank refinance rate applies.|
Overdraft facility: penalty rate of 3 times the refinance rate (for overdrafts maintained between 4 and 7 days). National bank can suspend operations on the correspondent account of banks failing to repay within 2 days. No penalty when overdrafts occurred for reasons beyond the control of the bank.
Credit auction: resumed in August 1994 after having been suspended in December 1993.
National bank bills auction: The national bank auctions its bills since June 1995.
Secondary market for treasury bills: The national bank has purchased and sold treasury bills in growing amounts.
Credit auctions: The national bank conducts auctions when needed. Banks trade credit in the interbank market on a daily basis.
|The national bank’s foreign exchange operations not regularly used as monetary instrument. Foreign exchange swaps have, however, been recently employed in minor extent to regulate liquidity of the banking sector.|
|Estonia||Uniform reserve ratio of 10% including foreign currency deposits (excludes demand deposits of Savings Bank that are subject to a higher requirement); eligible assets include deposits at the Bank of Estonia and up to 50% of vault cash; reserves on foreign currency deposits are to be maintained in domestic currency; 4-week maintenance period; reserves are based on the average of deposit liabilities on the 10th, 20th, and end of the preceding month; no averaging of reserve holdings; a penalty rate of 50% a year on the deficiency is levied, if the deficiency drops below 90% of required reserves or if any deficiency remains for more than 3 days, the bank is excluded from the clearing system.||Extension of central bank credit to commercial banks is limited to the amount of foreign exchange reserves in excess of those needed to provide full backing of base money. In this context, the Bank of Estonia has provided emergency credit to commercial banks.||Instrument|
Bank of Estonia certificate of deposit (CD): biweekly auctions; sealed bids; Interest Rate Commission sets upper and lower bounds on the interest rate; it also decides on the volume to be auctioned.
Secondary market for CDs: electronic trading; the Bank of
Estonia functions as the depository; CDs can only be traded in the banks book-entry system; settlement is the same day; the bank stands ready to buy back CDs or enter into repurchase agreements with banks, rates are set above market levels.
|Georgia||Uniform reserve ratio of 18% (ratio lowered from 20% in January 1996); overall compliance rate increased from 50% in September 1994 to 83% in June 1995; foreign currency reserves must be held in domestic currency.||Overdraft facility from September 1994, banks’ automatic access to overdrafts was eliminated.|
Directed credit has been eliminated and the volume of refinance credit has been reduced.
(Interbank) credit auction: open outcry method used; the national bank can exclude banks not in compliance with prudential regulations; up to 75% of a bank’s reserve requirement may be used to collateralize borrowing at the auction; the scale of operations while small is increasing.
Issues of treasury or central bank bills are planned.
(Interbank) credit auction: multiple maturities; the national bank intervention aimed mainly at fostering the development of the interbank market rather than attaining monetary policy objectives, but the national bank has borrowed in the market to manage liquidity.
|Since December 1994, the national bank uses foreign exchange operations to moderate the monetary impact of its lending to the government.|
|Kazakstan||Uniform ratio of 20% on domestic and foreign exchange deposits since February 1995. The portion due on foreign currency deposits may be held in foreign currency. Reserve holdings are averaged. Remuneration on required reserves was lowered from 50% to 25% of the national bank refinance rate.||Lombard facility: introduced in September 1995 with treasury bills as collateral. The interest rate is pre-announced and set within a lower bound of 1.2 times the refinance rate and an upper bound of the maximum interest bid in the regular national bank credit auction for 3 months’ credit. Maturity of the loan in a 7–28 day range. Monthly global limits. Credit available three days after application is presented to the national bank.||Instruments|
Centralized credit auction: Mostly fixed assets of banks and treasury bills are used as collateral. Regional credit auctions introduced in June 1994, phased out in 1995.
National bank securities: temporarily introduced in June-August 1995 with maturities of 7–14 days to sterilize foreign exchange inflows.
No monetary management through primary market for treasury bills.
Secondary market for treasury bills: Occasionally, the national bank has purchased and sold treasury bills in small amounts.
Credit auction: multiple-price system with minimum price announced by the national bank (refinance rate minus 5 points). As of January 1995, the national bank does not offer 6-month credits; maturity now varies between 1 and 3 months.
|The national bank’s foreign exchange operations have on occasion been used as monetary instruments.|
|Kyrgyz Republic||Uniform ratio of 15% since October 1994 apply to banks’ domestic and foreign-currency-denominated deposit liabilities. Requirement held in domestic currency including cash in vault (since March 1995). Requirement based on the monthly average of banks’ deposits with monthly maintenance period on average. Remuneration is served based on the credit auction rate. Penalties apply in case of noncompliance.||Lombard facility redesigned in mid-1994: collateral requirement lowered from 100% to 50%. Maturity of credit: 1 to 14 days. Interest rates: 5 to 12 percentage points above credit auction rate based on collateral. Usage has been steady, albeit—due mainly to lack of collateral—only by a limited number of banks.|
Emergency credit facility for problem banks introduced in November 1994. The national bank board decides on each credit granted or prolonged. Maturity does not exceed 6 months but can be rolled over. Initially, interest rate was well above credit auction rate; the national bank recently charged 80% of credit auction rate. Banks are excluded from bidding in credit auction, lose remuneration on required reserve, and are placed under increased surveillance.
Credit auctions: on April 1995, required collateral (treasury bills or foreign exchange) lower from 70% to 50% of amount borrowed. Because of limited participation interest rate is not representative.
Primary market for treasury bills: until late 1994, treasury bills served purely for monetary purposes. Now auction volume and timing is determined by the Ministry of Finance based on recommendations by the national bank.
Secondary market for treasury bills: not used by the national bank for liquidity management.
Credit auctions: since July 1994, multiple-rate auction and no longer minimum interest rate. Weekly auctions of 3-month credit.
|The national bank’s foreign exchange operations: weekly auctions of foreign exchange by the national bank to ensure transparent injection of foreign aid. Partly used as a monetary instrument.|
|Latvia||Since July 1993, a uniform reserve ratio of 8% applies to banks’ domestic- and foreign-currency-denominated deposit liabilities of the preceding month, measured as of balances on the 7th, 15th and 31st of the month. Since September 1994, banks have been allowed to hold a maximum of 50% of their required reserves in vault cash. The remainder is held in noninterest-earning deposits with averaging of reserves. All reserves are held in domestic currency. In case of noncompliance, banks pay a penalty rate of 2.5 times the refinancing rate.||Lombard facility (interest rate 5 percentage points above refinance rate), for which treasury bills are required as collateral. Can be drawn not more than 7 days consecutively and not more than 14 days in total during a month. Notification to draw this facility has to be made before noon at the latest on the day of the drawing.|
Automatic overdraft facility introduced in 1995 to help banks cover end-of-day clearing imbalances, for which treasury bills are required as collateral. Credit is extended on an overnight basis.
Automatic deposit facility introduced in 1995. Banks can make 1 -month deposit at the Bank of Latvia at a fixed rate.
Extraordinary financing facility for banks in serious difficulties introduced in 1995. Bank of Latvia board decides which banks are to be assisted, amounts to be provided, collateral to be accepted (treasury bills and/or privatization vouchers), and interest to be charged (with refinance rate as minimum).
Repo auctions in October 1995, replaced uncollateralized credit auctions.
Treasury bills secondary window established in April 1994.
Repo auction: multiple price auction; since December 1995, conducted daily; also, maturity reduced from 1 month to 1 or 2 weeks.
Treasury bills secondary window: Bank of Latvia’s quotes bid/offer prices daily based on result of previous auction. Ceiling applies to the Bank’s purchases.
|Bank of Latvia’s foreign exchange operations have been the main policy instrument over the last couple of years, with the objective of maintaining the exchange rate at its peg to the SDR.|
|Lithuania||Uniform reserve ratio of 10% applies to commercial banks’ domestic- and foreign-currency-denominated deposit liabilities of the preceding month. Reserves can only be met by deposits with the central bank with averaging of reserves for deposits in litas, but not for foreign currency. In case of noncompliance, banks pay a penalty rate of 1.5 times the previous month interbank rate applied to shortfalls of up to 20% of the required reserves; for shortfalls in excess of 20%, the fine is 2 times the interbank rate.|
In early 1996, penalties for not meeting reserve requirements were lifted temporarily due to the liquidity squeeze resulting from the banking crisis.
|Extension of central bank credit to commercial banks is limited to the amount of foreign exchange reserves in excess of those needed to provide full backing of base money. So far, the Bank of Lithuania has refrained from providing credit to commercial banks.|
|Moldova||Uniform reserve ratio since December 1994; in late 1995, ratio lowered from 12% to 8%; applies to commercial banks’ domestic currency deposits; deposits are averaged over the reserve maintenance period; required reserves above 5% are remunerated; reserve account and correspondent account at the national bank are combined and banks meet the reserve requirement on average.|
Foreign currency deposits are also subject to an 8% reserve ratio, but this may be satisfied by holding deposits abroad.
|Lombard facility: regulations approved November 1995; short-term central bank credit extended at the credit auction rate plus 45, 50, and 55 percentage points, in the first, second, and third months of a quarter, respectively; Lombard operations structured in the form of repurchase agreements because it gives the national bank clearer title to the collateral in the event of a bank default.||Instruments|
Credit auctions: about 90% of central bank credit to banks is auctioned; banks must meet prudential norms. Will soon be fully collateralized as required by law.
Open market operations: plans to start them in the spring of 1996, will replace credit auctions over the next year or two.
Credit auctions: single price auctions; no minimum rate. Held monthly with maturity varying from 3 to 6 months.
|Russia||Differentiated by type of deposits and currency; since May 1, 1996, 18% on domestic currency demand deposits; 14% on domestic currency 1 to 3-month term deposits; 10% on term deposits of more than 3 months; 1.25% on foreign currency term deposits (held in domestic currency); averaging of the base; no averaging of reserve holdings. The Sberbank is subject to a marginal reserve requirement of 20% for ruble demand and time deposits of less than 30-day maturity, 15% on ruble time deposits over 30 days maturity, and no reserve requirements on foreign currency deposits.|
The effective rate is much lower than the statutory rate; as of February 1996, compliance was only at 66%. The central bank plans to allow averaging of reserve holdings.
|Directed credit: the central bank is no longer providing direct credit through nonmarket means.|
Overdraft facility: credit provided at a penal rate (1.3 times the refinance rate). The central bank has not been extending overdrafts regularly; however, lax enforcement of reserve requirements means that some banks have access to overdrafts at no cost.
Refinance window: not actively used in 1995.
Lombard facility: the central bank has recently started a Lombard facility.
Credit auctions: held since February 1994, but participation in the auction has dried up since March 1995. Collateral is required (100%); hard currency deposits and balances in correspondent accounts at the central bank are accepted; access is restricted to banks meeting the 8% risk-weighted capital-asset ratio.
Deposit auction: introduced in 1995, outstanding volume at the end of 1995 was about 1 % of reserve money. Used actively in early 1996.
Primary market for treasury bills: the central bank manages auctions of treasury bills.
Secondary market for treasury bills: the central bank actively intervenes buying and selling treasury bills to manage the yield; since second half of 1995, interventions have been used more and more to manage liquidity.
Credit auctions: multiple-price auction method is used with a floor price equal to the central bank’s refinance rate. Monthly auctions of 3-month credit.
Primary market for treasury bills: not used for monetary management.
Secondary market for treasury bills: the central bank purchases treasury bills from the screen-based secondary market at the Moscow Interbank Currency Exchange (MICEX).
|Foreign exchange operations: purchases used to provide liquidity to the market.|
|Tajikistan||Uniform ratio of 18% on deposits, based on deposits at end of month and constituted with a 1-month lag. Reserves are not remunerated. Penalty for noncompliance (2% of the deficit) not regularly applied. Project to move to a uniform ratio, to increase to 5% penalty for noncompliance and to include foreign-denominated deposits in the base.||Directed credit: the national bank operates a standing refinance window. Maturity of refinance credit (varies according of type of project) as long as two years. The national bank charges the refinance rate. Penalty for overdue loans is five times the refinance rate.||Instruments|
No market-based monetary instrument
|Limits on cash withdrawals for household phased out in July 1995 and reintroduced in August 1995 because of fear of inflationary implications of credit expansion.|
Bank-by-bank credit ceilings: main monetary instrument.
The national bank’s foreign exchange operations have been used for short-term liquidity management over the last few months.
|Turkmenistan||Since January 1996, uniform reserve ratio of 11% on all deposit liabilities including foreign currency deposits; biweekly maintenance period; reserves must be held at the central bank; penalty rate of 0.2% daily.||Central bank credit: in 1995, the central bank provided refinance credit to commercial banks at the refinance rate and directed credit to public sector enterprises at zero interest rates. In addition, an interest-free, central bank credit facility has been extended for agriculture.|
Overdraft facility: the central bank provides automatic overdrafts to commercial banks, these loans are usually consolidated with refinance loans.
(Interbank) credit auction: the central bank may exclude banks not complying with prudential regulations; uncollateralized; the scale of operations is small with the Savings Bank supplying virtually all funds.
Credit auction: in February 1996, the central bank auctioned manat 1 billion (6% of outstanding credit to banks) at an annual interest rate of 82.9%. Auctions have since discontinued.
|Ukraine||Since January 1, 1996, uniform ratio of 15% on domestic and foreign-currency deposit liabilities. Requirement held in domestic currency, based on contemporaneous reserve accounting averaged, and over each 10-day period. Penalty rate of twice the refinance rate in case of shortfalls.||Lombard facility introduced in December 1995 provides fixed-term 30-day advances against collateral—government and municipal securities. Interest rate above the refinance rate or the current rate for the securities. No quotas, but access limited to banks with no outstanding debt to the NBU and complying with NBU regulations.||Instruments|
Target credit auction providing funds for directed credit were widely used in 1995.
General credit auction (only 6 in 1995) have been superseded by target credit auctions. No collateral required.
Target credit auction: minimum interest rates apply (refinance rate).
General credit auction: multiple price auction with minimum interest rate (refinance rate).
|National bank’s foreign exchange operations: mainly conducted on the exchange market; interventions in the interbank market have just started. Not a monetary instrument.|
|Uzbekistan||Uniform reserve ratio of 30% (the reserve requirement was doubled, from 15% to 30% in May 1994, to absorb excess liquidity in preparation for the issuance of the national currency); unremunerated; no averaging.||Directed credit: the central bank has not extended credit to banks at posted rates since the second quarter of 1995.||Instruments|
(Interbank) credit auction: open outcry method used; banks must comply with prudential regulations and norms to participate; uncollateralized; the scale of operations is growing, with the central bank providing most of the funds.
Certificate of deposit auctions: sealed bids, the central bank decides cut-off rate and volumes.
Secondary market for CDs: the central bank stands ready to repurchase its CDs after they have run for at least two weeks, at a rate determined case by case.
Primary market for treasury bills
(Interbank) credit auction: the central bank has borrowed in the market to manage liquidity. Daily auctions.
Primary market for treasury bills not used for monetary management.
|Foreign exchange purchases used to provide liquidity to the market.|