Monetary policy instruments system

Through instruments, the National Bank regulates liquidity and interest rates in the money market, influences lending activity of banks and exercises control over the volume of money supply in circulation.

In general, monetary policy instruments are divided into 3 types:

Open Market Operations are regular operations of the National Bank in the form of auctions for provision or absorption of liquidity in the money market with a view to set interbank interest rates around the base rate. Open market operations are conducted at the National Bank’s initiative. Highly liquid and risk-free securities are used as collateral while conducting open market operations.

Standing Facilities are monetary policy instruments used to adjust liquidity volumes which resulted from open market operations. The main objective of standing facilities is to limit volatility of short-term interest rates in the money market. Such operations are conducted at the initiative of banks.

Minimum Reserve Requirements are used to regulate the structural liquidity as well as liquidity and interest rates in the interbank money market. By changing its minimum reserve requirements, a central bank regulates the demand from banks for its reserves and, by using its instruments, it maintains the money market liquidity at the level enabling to keep short-term interbank interest rates within the required band.

Minimum reserve requirements

For each type of reserve obligations a separate standard of minimum reserve requirements is established:

1) short-term liabilities in national currency – 2%;

2) long-term liabilities in national currency – 0%;

3) short-term liabilities in foreign currency – 3%;

4) long-term liabilities in foreign currency – 1%.