June 2009

Subsequent to the Board meeting held on June 26, it was approved that the CBS will put in place two lending facilities namely the Standing Credit Facility (SCF) and Emergency Loan Facility (ELF).  The former instrument is to enable banks to better manage their short-term liquidity positions; primarily overnight whilst the latter is an emergency liquidity support facility primarily aimed at preventing severe and persistent short term liquidity problems that may lead to issues of insolvency and to avoid bank runs.

Moreover, the Board also approved the proposal to further reduce the ratios of two existing instruments in which the LAR was reduced by 5 percentage points from 40% to 35% whilst the MRR was reduced by 1 percentage point, from 13% to 12%.  The changes made to these two instruments became effective as of July 1.

Furthermore, the Board approved two other instruments namely Repo and Reverse Repo to form part its Open Market Operations (OMO).  These are to be made available solely to the banks for the management of short term fluctuations in their liquidity.  The former instrument is for liquidity injection as a form of collateralised lending by the CBS whilst the latter involves absorption of liquidity as a form of collateralised borrowing by the CBS.

May 2009

In the month of May the Bank started to put in place Repurchase and Reverse Repurchase Agreements to be entered into with commercial banks. 

April 2009

In line with the reforms in 2009, the Local Asset Ratio was reduced by 5 percentage points to 40% effective April 1.  Whilst this direct instrument is being phased out gradually, a liquid assets ratio was introduced in February 2009 to eventually replace it.

Moreover, the Bank which temporarily ceased its lender of last resort functions in November 2008, decided to reopen its lending windows to the commercial banks.  As of April 1, the Bank allowed for short-term borrowings by banks for three different maturities namely overnight, 7 days and 14 days, using government securities as collateral.  Interest is charged at the average interbank lending rate plus a margin as per the following

Overnight:          1.50%

7 days:             1.75%

14 days:            2.00%

In that same month, the 13% MRR on foreign currency deposits started to be paid in foreign currency rather than rupees.  Revisions were also made to the remunerations on the minimum level of reserves.

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