MNB to charge same interest on banksʼ excess reserves as on O/N deposits

MNB

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Banks will no longer be able to keep money in excess of their mandatory reserve obligation free of charge on their National Bank of Hungary (MNB) accounts as the MNB will introduce a 0.05% interest rate on such excess reserves as of April 7, Hungarian news agency MTI reported today.

The charge, announced by MNB Deputy Governor Márton Nagy today, will put the excess reserves on equal footing with the central bankʼs O/N deposits, on which banks also have to pay 0.05% interest from March 23.

The step will encourage banks to find other targets – in the MNBʼs stated intention, government security investments – for their excess liquidity than simply leaving the excess on their accounts.

Before yesterdayʼs rate cut, the O/N deposit rate was 0.1%, attractive compared to the zero interest on excess money on banksʼ MNB accounts.

The MNB narrowed the corridor for interbank interest rates together with a surprise 15 bps base rate cut yesterday. It reduced the O/N deposit rate by 15 bps to a negative 0.05% and cut the O/N collateralized loan rate to 1.45% from 2.1%.

The MNB pays banks the prevailing base rate – 1.2% from March 23 – on their mandatory reserves, and it charges a punitive rate, also equal to the base rate, for any reserves shortfall.

The mandatory reserve rate has been 2% since December 1. Previously, banks had the option of choosing their own mandatory reserve rate among 2 to 5% every six months.

Banks have to meet their reserves obligation on a monthly average basis.

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