Monetary Policy - Daily Liquidity Management



With a view to maintaining daily liquidity, banks may use up to 50% of their mandatory reserve held at the account with the Central Bank for meeting their matured obligations.  The used amount of the mandatory reserve must be returned on the same working day.  The banks do not pay interest on the mandatory reserve funds used if the prescribed reserve amount is replenished at the day end.

The Central Bank may approve the banks intra-day or overnight liquidity loans from its own resources held at a dedicated account.  The approved loan must be fully collateralized by the securities issued by the Republic, an EU member state or other state as prescribed in the Central Bank regulation.  The loan is given on the basis of a contract, in an amount up to 80% of the nominal value of securities pledged.  The maturity of the securities must be at least three days, and not longer than one year.

The Central Bank has the priority right in the collection of claims under the loan in accordance with the contract.

            1. Intra-day loan – If a bank does not have sufficient funds on its operating account to meet its matured obligations, the Central Bank may approve such bank an intra-day loan.

Interest on such loan is charged at an average interest rate formed at the most recent auction of treasury bills.

The bank must repay the intra-day loan by the end of the working hours on the same day in which the loan was approved.  Otherwise, the Central Bank will charge interest at a rate that is by 50% higher than that on the last auction of treasury bills.

            2. Overnight loan – If at the end of the working hours (at 16:00 h) there are no sufficient funds on the bank's operating account to meet the obligations due and payable, including the obligations under intra-day loan and mandatory reserve, the Central Bank may approve such bank an overnight loan.

Overnight loan is approved or renewed for the period of one working day (24 hours) and may be used for not more than 7 working days in a month.  The banks are obliged to repay or renew the overnight loan by 18:00 h on the following day.

For overnight loans, the Central Bank charges interest that is by half a percentage higher than average interest rate formed at the last auction of treasury bills.  If the loan is not repaid at maturity, the Central Bank will charge interest at a rate that exceeds the interest rate on the overnight loan by 80%. 

The banks in Montenegro have not used these loans so far.