According to the MNB decrees on the minimum reserves, credit institutions having operating licence in Hungary including Hungarian branches of foreign credit institutions are required to hold minimum reserves with the central bank in respect of their liabilities. Credit institutions shall comply with minimum reserve requirements in a one month long maintenance period, by holding an average amount on their current account kept with the MNB equal to their minimum reserve requirement.
The main purpose of minimum reserve requirements is to help liquidity management of credit institutions and to smooth overnight interest rate volatility by the averaging provisions. In addition, minimum reserve requirements have a role in creating stable demand for central bank money. Since Hungary’s accession to the European Union the interest rate on minimum reserves is identical to the prevailing central bank base rate, which means that minimum reserve requirements no longer impose implicit tax on the banking system. Minimum reserve requirements are regulated by MNB decree on the calculation of the minimum reserves and MNB decree on the required reserve ratio.
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