At a meeting on 26 April, the Governing Council of the Bulgarian National Bank (BNB) adopted amendments to the regulation on the required minimum reserves that banks maintain with the BNB, the central bank reported on its website.
According to the amendments, as of June 1 this year, the percentage of the minimum reserve requirement on funds raised by banks from non-residents is increased from 5 to 10%, and as of July 1, the percentage of the minimum reserve requirement on funds raised by banks from residents and non-residents is increased from 10 to 12%.
The announcement states that current macroeconomic developments are characterised by accelerating consumer price growth rates, high private sector wage growth, strong consumer demand and continued high household credit growth. The continuation of these trends poses potential risks to the sustainability of the banking system and to the BNB's primary objective of maintaining price stability, BNB noted.
In an environment of significant inflows of attracted resources into the banking system, high liquidity and competition in the banking sector, there is a weak and slow transmission from the rise in eurozone key interest rates to deposit and lending rates in Bulgaria. Taking into account the slow and weak transmission of the European Central Bank's monetary policy changes and the limited effects of the BNB's increases in the countercyclical capital buffer on lending activity, the increase in reserve requirements is aimed at tightening monetary conditions in the country, the central bank explained.
BNB noted that the measure would draw down some of the current excess liquidity in the banking system and contribute to reducing the spare resources with which banks can lend, creating incentives for a faster and more significant pass-through of higher monetary policy rates in the euro area into the cost of credit. A slowdown in lending activity would help to gradually reduce the rate of inflation through its impact on borrowing-financed consumption. A reduction in the pace of credit growth would contribute to a reduction in credit risk in the banking system, the statement reads.