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Monetary Policy | Monetary Policy Instruments | Required Reserves

Required Reserves

Required reserves are the amount of funds that banks are required to keep on deposit in accounts designated for such purpose by the central bank.

Required reserves constitute a monetary policy instrument which a central bank uses to varying degrees depending on the conditions of the financial system. 

The degree of monetary policy tightening using this instrument is determined by the required reserve ratio, which may be uniform or differentiated, and by the reserving base to which the ratio is applied. To this effect, reserve requirement  may be applied to either total or fraction of deposits, or reservable liabilities may include other categories, such as liabilities in respect of loans and proceeds derived from securities issued.

By changing the reserve ratio, the central bank induces a reduction or expansion of commercial banks’ lending potential, and withdrawal and/or creation of liquidity. In market economies, required reserve ratio is used as an instrument for regulating bank credit potential rather than bank liquidity.

The National Bank of Serbia uses reserve requirements only as a supportive instrument when the effects of all other market-based measures for monetary regulation are exhausted. Decisions on the level of reserve ratios and the reserving base are taken by the National Bank of Serbia’s Executive Board.

Current required reserve ratios

  Up to 2 years Over 2 years
In dinars 5% 0%
In foreign currency 20% 13%
In foreign currency – foreign currency-indexed liabilities in dinars 100% 100%

Required reserve allocations

In dinars
  • Amount calculated by applying the ratio (5%) to dinar sources of funding with maturity up to two years 
  • 38% of the amount calculated by applying the ratio to foreign currency sources of funding with maturity up to two years, in dinar equivalent 
  • 30% of the amount calculated by applying the ratio to foreign currency sources of funding with maturity over two years, in dinar equivalent
In foreign currency
  • 62% of the amount calculated by applying the ratio to foreign currency sources with maturity up to two years 
  • 70% of the amount calculated by applying the ratio to foreign currency sources with maturity over two years

 

See More...
Regulations
Required reserve base
Calculation of required reserves in dinars and euros
Allocation of dinar and foreign currency required reserves
Required reserves maintenance period and averaging
Interest on required reserves
Daily banking sector liquidity
Changes in required reserve levels since January 2005