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NBU to Change Reserve Requirements to Decrease Loan Rates and Dedollarize the Economy

As of 10 March 2020, reserve requirements for banks will depend on the currency of deposits rather than on terms of deposits, as at present. For hryvnia deposits a zero rate will be set for the reserve requirement, and 10% – for FX deposits. This will foster two strategic goals of the National Bank of Ukraine (NBU): bank lending and depolarization of the economy.

“The NBU believes that changing the reserve raising procedure will not only lower dollarization of deposits but will also help decrease loan rates for households and businesses more quickly,” noted Yakiv Smolii, NBU Governor, in his announcement at the press briefing on the monetary policy.

Today, neither businesses nor households have demand for FX loans, however FX liquidity of the banking system has reached about USD 6 billion. At the same time, the economy requires a boost in hryvnia lending that depends on the decrease in hryvnia interest rates.

A decrease in the NBU key policy rate this year from 18% to 13.5% following another expected decrease to 8% will gradually translate into lower hryvnia lending rates. Zeroing reserve requirements in hryvnia will provide additional boost to this process due to lower rates for deposits for banks.

At the same time, postponing the new approach is associated with the need for a transition period for banks to bring their commercial policies in line with reserve requirements.

Introducing a new approach to raising bank reserve requirements was approved by NBU Board Decision No. 926-D On amendments to the Decision of the Board of the National Bank of Ukraine No. 752 dated 23 November 2017, dated 12 December 2019. Amendments enter into effect on 10 March 2020.

For reference:

Effective reserve requirements for banks are estimated according to terms of deposits. For term deposits the reserve requirement is 3%, for current accounts – 6.5%.

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