This Friday, August 30, in an ordinary session, the board of directors of the Bank of the Republic made the decision to reduce the reserve requirement on deposits held by credit institutions. This determination was made “in order to contribute to the process of financial deepening of the economy” of the country.
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The reduction in the reserve requirement will be carried out as follows:
– Reduction of one percentage point in the reserve requirement on liabilities whose current required reserve percentage is 8% (current accounts and savings accounts, mainly). That is, the reserve requirement for these liabilities goes from 8% to 7%.
– Reduction of one percentage point in the reserve requirement on liabilities whose current required reserve percentage is 3.5% (CDT of less than 18 months). That is, the reserve requirement for these liabilities goes from 3.5% to 2.5%.
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According to Banrep, It is estimated that with the reduction in the reserve requirement, bank reserves will be reduced by an amount of approximately 6 billion pesos.
“The decision took into account the management of monetary policy based on the inflation targeting strategy, in which the interest rate is the main instrument, and the evolution and implementation of regulatory standards that mitigate the liquidity risk of credit institutions.“, said Banrep, adding that will continue to carry out its liquidity operations so that the short-term market interest rate remains in line with the policy interest rate.
How the banking reserve works
The Bank of the Republic He explained that “bank reserve requirements have been a relatively simple policy instrument, generally applicable and closely related to the basic structure of financial intermediation activity.”
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And he added: “These characteristics have historically given it various roles, which have evolved in line with the development of the financial system and changes in the way economic policy is designed and implemented. The reserve requirement has been used to mitigate the liquidity risk of banks and as an instrument of monetary policy, focused on controlling the growth of broad monetary aggregates and credit. Advances in the regulation of liquidity risk and changes in monetary policy strategy have made the reserve requirement lose relevance in these roles.“.
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