The policy measures that have been approved by the Governor of the the BoT are set out below:
1. Statutory Minimum Reserves (SMR)
The BoT intends to lower the SMR requirement from 7% to 6%. Pursuant to the BoT Act 2006, the BoT may require banks or financial institutions to maintain minimum cash balances with the BoT as reserves against the deposit and other liabilities of the banks and financial institutions and may, in that respect, prescribe the currency or the currencies in which such balances shall be held. According to the Press Statement, this policy measure will come into effect on 8 June 2020 and is expected to provide additional liquidity to banks. This policy measure has often been taken by the BoT in the past given prevailing economic conditions and has proven effective to spur economic growth in the market.
2. Discount Rate
In anticipation that banks may require additional funding from the BoT in light of COVID-19 the BoT has reduced the discount rate from 7% to 5%. The discount rate is the rate at which the BoT lends to banks. According to the Press Statement, this policy measure came into effect on 12 May 2020 and will enable banks to borrow additional funds from the BoT at a lower discount rate to then lend to their customers at a lower rate.
3. Haircuts on Government Securities
In relation to government securities, the BoT has reduced haircuts on treasury bills from 10 percent to 5 percent and on treasury bonds from 40% to 20% marking a significant change which has been made in the expectation that it would increase the ability of commercial banks to borrow from the BoT with less collateral than before. Haircuts are the difference between the current market value of an asset and the amount that can be used as collateral for a loan. A higher haircut means that if there is a drop in the market value of the collateral, the lender is still able to recover the amount that has been maintained as collateral. According to the Press Statement this policy measure came into effect on 12 May 2020.
In anticipation that banks may require additional funding from the BoT in light of COVID-19 the BoT has reduced the discount rate from 7% to 5%. The discount rate is the rate at which the BoT lends to banks. According to the Press Statement, this policy measure came into effect on 12 May 2020 and will enable banks to borrow additional funds from the BoT at a lower discount rate to then lend to their customers at a lower rate.
3. Haircuts on Government Securities
In relation to government securities, the BoT has reduced haircuts on treasury bills from 10 percent to 5 percent and on treasury bonds from 40% to 20% marking a significant change which has been made in the expectation that it would increase the ability of commercial banks to borrow from the BoT with less collateral than before. Haircuts are the difference between the current market value of an asset and the amount that can be used as collateral for a loan. A higher haircut means that if there is a drop in the market value of the collateral, the lender is still able to recover the amount that has been maintained as collateral. According to the Press Statement this policy measure came into effect on 12 May 2020.
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