Monetary Policy Instruments (MPI) 

Concept and basic features 

1. Open market operations    

Open market operations – an instrument used to regulate («sterilize»/replenish) the level of liquidity in the banking system.    

1.1. Auctions of notes of the National Bank    

Notes are discount securities issued by the National Bank for a period of 7 to 364 days. The parameters of the notes issue (method, volume, maturity, maximum yield, date of the auction) are determined by the decision of the Monetary Regulation Committee of the National Bank. The purpose of the auctions of notes is liquidity absorbing from the banking system in national currency.   

1.2. Operations on the secondary market of securities   

1.2.1. Repo operations of the National Bank  

Repo operations of the National Bank – purchase (repo)/sale (reverse repo) of securities issued by National bank and Ministry of finance of the Kyrgyz Republic with an obligation of their reverse sale/purchase on a specific date in future and at a price agreed earlier.  The aim of this instrument is to provide liquidity (repo) for the banking system or withdraw excessive liquidity (reverse repo) from the banking system. Auction based or fixed rate repo operations are conducted under resolution of Monetary Regulation Committee of the National Bank. Also, Monetary Regulation Committee of the National Bank makes decision on amount, term and interest rate of the repo operation.   

1.2.2. Purchase of securities under “outright” conditions (rediscount operations of the National Bank)    

Purchase of securities under «outright» conditions – purchase of securities issued by the National bank and Ministry of finance of the Kyrgyz Republic to provide liquidity in national currency for the banking system. Rediscount operations are conducted under resolution of Monetary Regulation Committee of the National Bank. Also, Monetary Regulation Committee of the National Bank makes decision on amount, type and term of the operation.   

2. Deposit operations of the National Bank in national currency    

Deposit operations of the National Bank in national currency – the aim of this instrument is to withdraw excessive liquidity from the banking system in national currency through attracting funds to the deposit account of the National Bank under repayment, interest payment and maturity conditions. Auction based or fixed rate deposit operations are conducted under resolution of Monetary Regulation Committee of the National Bank. Also, Monetary Regulation Committee of the National Bank makes decision on amount, term and interest rate of the deposit operation.   

2.1. «Overnight» deposit   

«Overnight» deposit is the instrument, aimed to withdraw the short-term excessive liquidity and allowing the commercial banks to place deposit in the National Bank for the night under certain interest rate. The interest rate is set by Monetary Regulation Committee of the National Bank as the lower boundary of interest rate corridor. Commercial banks have permanent access to overnight deposit upon their request.    

3. Policy rate  

Policy rate (key rate) is the main instrument of the monetary policy and serves as a benchmark for the value of funds in the money market. The policy rate is determined by the Board of the National Bank. The operational benchmark of the monetary policy is the short-term interest rates of the money market.  

4. Reserve requirements (RR)  

Reserve requirements – is the monetary policy instrument used for adjustment of general liquidity level in the banking system, short-term interest rates and monetary aggregates volume. Required reserves is a claim for commercial banks and microfinance companies, attracting deposits, on placement a certain amount of money in reserve assets in accordance with the terms determined by the National Bank. 

The commercial banks and microfinance companies, attracting deposits, are required to observe reserve requirements during the four calendar weeks (28 days) of the baseline period. At the same time, commercial banks are additionally applied by the requirement to keep the minimum threshold level of the required reserves, which involves maintaining on a daily basis a respective amounts of funds in reserve assets to observe required reserves. 

Depending on the monetary policy objectives, the following reserve requirement norms are set by the decisions of the Board of the National Bank: 

- the required reserve ratios; 

- the minimum threshold level of the required reserves; 

- the ratio and size of assets included in reserve assets to observe reserve requirements; 

- the remuneration rate for fulfillment of required reserves; 

- the penalty rate for non-fulfillment of the reserve requirements and the minimum threshold level of the required reserves. 

5. Refinancing operations    

Refinancing operations – a liquidity-providing tool is used to adjust the level of reserves in commercial banks in case of a liquidity shortage.   

5.1. Intraday lending facility (ILF)   

Intraday lending facility (ILF) is provided in the national currency on the interest-free basis during the trading day for several hours. Government securities of the Kyrgyz Republic and notes of National bank are accepted as collateral. It is a standing facility tool used on the initiative of commercial banks to enhance efficiency of the payment system.   

5.2. Overnight lending facility   

Overnight lending facility is provided in the national currency for one day, secured by a collateral, to maintain short-term liquidity of the bank. Government securities of the Kyrgyz Republic and notes of National bank are accepted as collateral. The interest rate is set by the Monetary Regulation Committee of the National Bank and the overnight interest rate is the upper boundary of the interest rate corridor. It is a standing facility tool used on the initiative of commercial banks.   

5.3. 7-day loan   

7-day loan is given in national currency for 7 days and secured by a collateral to maintain short-term liquidity. Government securities of the Kyrgyz Republic and notes of National bank are accepted as collateral. The 7-day loan is provided on an auction basis (at the initiative of the National Bank) and/or on the basis of open window (at the initiative of commercial banks) by decision of the Monetary Regulation Committee of the National Bank. The minimum interest rate for participation in the auction and/or fixed interest rate for the 7-day loan is set by the Monetary Regulation Committee of the National Bank.   

5.4. Credit auctions for the purposes of refinancing and maintenance of liquidity   

Credit auctions are held on the initiative of the National Bank to provide commercial banks credits in national currency on the repayment basis to maintain liquidity and at lending to certain sectors of the economy. The interest rate, terms and volume of credit are determined by the decision of the Monetary Regulation Committee. Government securities of the Kyrgyz Republic, notes of National bank, foreign currency and the claim of loan portfolio that meet certain characteristics are accepted as a collateral.    

5.5. The loan of last resort   

The loan of last resort is provided in exceptional cases to commercial banks experiencing serious financial problems. The interest rate is set by the Board of the National Bank. It is used at the initiative of commercial banks under the program of improvement of the bank.   

5.6. The loan for liquidity support 

The loan is provided to the bank in order to protect the integrity and stability of the banking system, prevent systemic risk, maintain the bank's liquidity and protect the interests of depositors. The decision on providing a loan, conditions of providing, the number of extensions, as well as the terms and volume of the loan are determined by the Board of the National Bank. The bank's obligation to repay the loan is secured by a collateral. 

6. Foreign exchange operations   

Foreign exchange operations are operations with foreign currency in interbank foreign exchange market.   

6.1. Foreign exchange interventions   

Foreign exchange interventions are operations of buying or selling of foreign currency aimed to smooth an excessive volatility of exchange rate. Foreign exchange interventions are conducted under resolution of Monetary Regulation Committee of the National Bank.   

6.2. Swap operations of the National Bank   

Foreign exchange swap operations of the National Bank are the operations of exchange of national (foreign) currency to foreign (national) currency with the liability of reverse exchange of principals and accrued interest rates in particular time. These operations are aimed to provide liquidity in national currency (direct swap) for the banking system or to withdraw excessive liquidity (reverse swap) form the banking system. Under resolution of Monetary Regulation Committee of the National Bank auction based swaps or fixed rate swaps are conducted. Also, Monetary Regulation Committee of the National Bank makes decision on amount, term and interest rate of swap.