CNB ends remuneration of minimum reserves
At its meeting on 7 September 2023, the Bank Board decided to end the remuneration of minimum reserves with effect from 5 October 2023, the first day of the new reserve maintenance period.
The Czech National Bank took this step to lower the cost of implementing monetary policy while preserving its effectiveness. The European Central Bank adopted a similar decision in July 2023. Minimum reserves are not an instrument of CNB monetary policy.
What are minimum reserves?
Banks, foreign bank branches and credit unions (“banks”) are required to hold a proportion of their primary liabilities (2% since 1999) as reserves on an account with the CNB. The minimum reserves have not been a de facto monetary policy instrument for a long time, but they still act, among other things, as a liquidity buffer to ensure smooth interbank payments. Each bank’s demand for reserves for interbank payment purposes depends on many external factors and is therefore volatile and difficult to predict at the level of individual banks. The existence of reserve requirements can stabilise individual banks’ demand for reserves, because banks can use minimum reserves as a balancing tool (in an environment of a structural liquidity surplus). In the event of a sudden liquidity need caused by external factors, banks may face a short-term liquidity shortage, which, however, they will cover from the reserves they hold for compliance purposes. This is possible because the duty to maintain the required minimum reserves is based on averages over individual maintenance cycles.
For a detailed description, see:
- Decree No. 253/2013 Coll., stipulating the terms and conditions for creating minimum reserves (pdf, 19 kB)
- Official information of the Czech National Bank of 24 October 2022 (pdf, 460 kB)
Petra Krmelová
Director of the Communications Division and CNB Spokesperson