MNB flexible on compliance with the new daily minimum reserve requirements in the first days of April

Budapest, March 20, 2023.Based on the previous decisions of the Monetary Council, with the amendment of the required reserve system, in April the average monthly liqudity permanently tied up in the reserve account from the available banking system liquidity will rise from the level of 2,341 billion forints in March to close to 4,500 billion forints. In order to ensure the transition to the new minimum reserve requirement system and to support bank liquidity management, the MNB will waive the daily reserve requirement temporarily, from 1 to 5 April. At the same time, all credit institutions subject to reserve requirements will still be required to fulfil their monthly reserve requirements.

During its previous meetings in 2023, the Monetary Council decided to modify the reserve requirement system in order to permanently tie up a larger part of the banking system's liquidity and thusimprove monetary policy transmission. Following the Council's decisions, the required reserve ratio will raise from 5 percent to 10 percent, effective from 1 April, and the interest rate paid on the required reserve account will also change. As of April 1, 2023, the MNB will pay no interest on the 2.5 percent of the reserve base, while continuing to pay the base rate on the 7.5 percent of the reserve base, and optional reserves will be remunerated at the overnight quick deposit tender rate instead of the base rate.

The period for choosing the optional reserve ratio for the next quarter, starting on April 1, 2023, was closed on March 16. With the increase of the minimum level of the mandatory reserve ratio to 10 percent and the modification of the interest rate paid on the optional reserves, following the decision of the credit institutions, in the second quarter of 2023, the average monthly volume of banking system liquidity sterilized by the MNB in the reserve accounts will rise from the current level of HUF 2,341 billion to close to HUF 4,500 billion. As a result, the average mandatory reserve ratio, which also includes the optional reserve ratio, will rise from its first quarter level of 5.8 percent to over 11 percent at the banking system level.

Several instrumentsof the MNB applied at the end of the first quarter of 2023 will expire on April 6. Thus, in order to ensure the transition to the new minimum reserve requirement system and to support bank liquidity management, based on the decision of the Monetary Council, temporarily, from 1 to 5 April, the requirement to meet the 10 percent reserve requirement on a daily basis is generally waived. The MNB grants the exemption to all credit institutions subject to reserve requirements even without the credit institution's individual request. The exemption does not affect the amount of the monthly average reserve requirement, credit institutions subject to reserve requirements must still comply with the requirement of the chosen reserve ratio on a monthly average.