The National Bank of Ukraine moves ahead with efforts to enhance instruments used for managing liquidity in the banking system. These instruments primarily include repo operations, and refinancing loans with a maturity of up to 90 days provided through tenders.

NBU Board Resolution No. 90, dated 18 February 2016, On Amendments to the Regulation on the Use by the National Bank of Ukraine of Standard Instruments for Regulating Liquidity in the Banking System, and  NBU Board Resolution No. 100, dated 23 February 2016, On Approval of the Procedure Governing NBU’s Operations Involving Standard Instruments for Regulating Liquidity in the Banking System, were issued to this effect.

First, these resolutions provide for the possibility to use a rollover mechanism allowing the NBU to extend a loan to a bank to enable the latter to settle earlier assumed debt obligations. The rollover can be used to repay a refinancing loan and an overnight loan provided against the collateral of Ukrainian government bonds and NBU certificates of deposit.

Second, these resolutions have expanded the list of eligible collateral that can be accepted by the NBU for overnight loans and repo operations.  Up until now,  domestic sovereign bonds, NBU certificates of deposit have been used as collateral against  overnight loans, whereas the only eligible collateral for repo operations have been domestic sovereign bonds. At the same time, bonds issued by international financial institutions could be pledged as collateral for refinancing loans. From now on, bonds issued by international financial institutions can be accepted by the NBU for overnight loans and repo operations.

Third, these resolutions have allowed banks to increase, decrease the amount of collateral or replace collateral pledged against refinancing loans. Up until now, banks have been allowed to decrease the amount of collateral in case of the partial repayment of a loan.

These changes will allow banks to meet their short-term liquidity needs.  At the same time, greater flexibility in the banking sector liquidity management is a necessary prerequisite for the successful implementation of the monetary policy in the context of an inflation targeting regime. The NBU plans to announce a shift to an inflation targeting regime by the end of 2016.

The aforementioned amendments shall take effect from 4 April 2016.