The Bulgarian National Bank (BNB) has decreased the interest rate on banks’ excess reserves deposited at the BNB from -0.4% to -0.6% as of Oct 4, the local newspaper Capital reported on the basis of anonymous sources’ information. The central bank has not confirmed the information explaining that the negative interest rate on excess reserves is not a monetary policy instrument, which is why it is announced only to banks, not publicly. The BNB also added that the interest rate on excess reserves is set in line with the ongoing interest rate trends on the market. The excess reserves’ interest rate cut has already affected interbank rates though, the daily commented.
We think that BNB’s latest decision to reduce the interest rate below ECB’s level of -0.4% might aim to stimulate banks to raise their crediting activity or to be more active in managing their liquidity. Bankers commented for the daily that the main effect will be a withdrawal of deposits from Bulgaria, which will be easy for international banks’ local offices and daughter companies. Bankers also added that BNB’s decision will affect their pricing policy regarding interest rates on larger corporate deposits, for which negative interest rates have already been set. No negative interest rates on households’ deposits are expected, though. Bankers expect that the negative interest rate on excess reserves will likely be maintained in the next 12 months but then it might be reversed, following expected gradual ending of ECB’s non-standard monetary policy.
Further effects might be expected in regards to the government securities market, as banks are likely to increase their demand, which will result in falling yields, according to the media.