CNB Council: Reserve requirement rate reduced from 13.5 to 12 percent

Published: 28/11/2013

The CNB Council reduced the reserve requirement calculation rate from 13.5% to 12% in order to boost the already high liquidity and enable banks to finance the economic recovery. In addition, in line with the general trend of falling interest rates, the interest rate charged by the central bank on Lombard loans was cut from 6.25% to 5.00%.

The decisions were adopted at today's extraordinary CNB Council session in order for them to take effect already this year. The reduced reserve requirement calculation rate will apply as soon in the following calculation (11 December), with the result that total reserve requirements will decrease by approximately HRK 4.7bn, down by HRK 3.9bn and HRK 0.8bn in the kuna and foreign exchange component respectively.

However, the governor's decision, enacted today, requires banks to purchase three-year compulsory CNB bills for the total amount of the released reserve requirements. No interest will be charged on these bills and they will be non-transferrable, that is, banks will not be able to sell them to other persons, pledge them, etc., but they will be able to offer them, prior to maturity, at each month-end, for redemption by the central bank. The amount offered is to equal 50% of the increase in certain placements to domestic non-financial enterprises in the previous month.

Specifically, the CNB will enable the first redemption of these bills to be made on 31 December 2013, in the amount of 50% of the increase in certain placements to domestic non-financial enterprises on 30 November relative to 31 October. There will be no limitations as regards the interest rate and the currency of denomination of these placements, but the required maturity is not to be lower than three months.

If the total released amount of the kuna reserve requirement component is used, lending to the economy will increase by approximately HRK 7.8bn. Should this be the case, the CNB will be ready to provide the banking system with required liquidity.