Bank of Lithuania leaves interest rates on commercial bank reserves at the central bank unchanged
The Bank of Lithuania will continue to apply zero interest rates on minimum reserves in litas held with the Bank of Lithuania for domestic commercial banks. As it was until now, interest will not be payable on reserve surplus either.
The updated Reserve Requirements for Credit Institutions provide that, in calculating remuneration on minimum reserves, the higher of the following values shall be used: the interest rate on the deposit facility applied by the European Central Bank or the zero interest rate. Currently, zero is the higher value.
The decision to leave unchanged the interest rate on bank reserve surplus is aimed at achieving the same goals as with the renewed time deposit auctions: to reduce bank incentives to exchange their surplus funds in litas into euro, that have accumulated due to a temporary decline in national cash in circulation before the adoption of the euro, thereby avoiding sharp fluctuations in the Bank of Lithuania’s foreign reserve assets and an involuntary sale of a part of investments due to temporary changes in the amount of cash in circulation.
The Bank of Lithuania will monitor reserve surplus developments and, if it becomes necessary, may change the interest rate payable on bank reserve surplus, the terms and conditions of time deposit auctions and/or set the limits on the surplus reserves for which the zero interest rate could be applied.