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MNB Raises Mandatory Reserve Requirement to 5% From Oct 1

MNB

Local lenders' mandatory reserve requirement will rise from 1% to 5% from October 1, in line with a decision by National Bank of Hungary (MNB) policymakers in August, the central bank said on Friday, according to a report by state news wire MTI.

MNB is also allowing lenders to pick an additional reserve rate, over the 5% minimum rate, of up to 5%, allowing the central bank to absorb more liquidity and give credit institutions the flexibility to deal with liquidity shocks. Lenders must comply with the minimum reserve ratio on a daily basis. Compliance with the reserve ratio lenders pick is on a monthly average basis.

The new reserve requirement was one of three measures the MNB's Monetary Council decided on at their last monthly policy meeting to soak up banking sector liquidity. The other two steps are the launch of regular discount bill auctions and a long-term deposit facility with variable rates from October.

The set of measures is intended to drain interbank liquidity and facilitate the effectiveness of monetary transmission.

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