6 October 2015

The Magyar Nemzeti Bank’s Monetary Council has decided to reform the Bank’s minimum reserve framework, in order to enhance the efficiency of the self-financing programme. From 1 December 2015, the MNB’s current reserve framework with optional reserve ratios will be replaced by a uniform reserve ratio set at 2 per cent for all domestic banks. The introduction of the fixed reserve ratio represents a move towards harmonisation with the practice of the European Central Bank.

The aim of the self-financing programme announced by the Magyar Nemzeti Bank in April 2014 and extended in June 2015 has been to have a healthier structure of government debt by increasing domestic banks’ Hungarian securities holdings and to reduce the country’s external vulnerability. The measures taken under the programme so far have been successful. Banks have increased their government securities holdings by HUF 1,800 billion in part by using the MNB’s conditional interest rate swap facility in the amount of HUF 1,000 since early 2014.

Banks are likely to continue to take significant adjustment efforts following the reform of the MNB’s sterilisation instruments launched on 23 September 2015, the introduction of the three-month central bank deposit as the Bank’s new policy instrument as well as the entry into force of the liquidity coverage requirement for credit institutions. The optional reserve calculation regime, introduced in 2010, allows banks to choose a reserve ratio between 2 per cent and 5 per cent at which they operate. As the reserve account offers favourable liquidity features, the current system also allows banks choosing their reserve ratio at below the maximum ratio of 5 per cent to adjust to tighter liquidity requirements using a central bank facility instead of the government securities market, which, however, is contrary to the objectives of the self-financing programme.

In view of the above and in order to enhance the efficiency of the self-financing programme, the Monetary Council has decided to replace the current optional reserve calculation system with a uniform reserve ratio set at 2 per cent for all domestic banks from 1 December 2015. Other parameters of the reserve requirement regime, including the reserve base, the maintenance period and the interest rate at which reserves are remunerated, will remain unchanged. The Hungarian minimum reserve framework with optional reserve ratios has no equivalent in the European Union, and the fixed reserve ratio represents a move towards harmonisation with the practice of non-euro area central banks and the European Central Bank. Following the Monetary Council’s decision today, the MNB requests a formal opinion from the ECB.