• Open market operations
• Automatic facilities
• Extraordinary facilities
• Minimum reserves
• Monetary policy instruments
• The main instruments of monetary policy - history of settings (development of CNB rates)

Open market operations

Open market operations are used for steering interest rates in the economy. Open market operations are mostly executed in the form of repo operations (based on a general agreement on trading on the financial market). With regard to their aim and regularity, the CNB's open market operations can be divided into the following categories:

• The main monetary policy instrument takes the form of repo tenders. The CNB accepts surplus liquidity from banks and in return transfers eligible securities to them as collateral. The two parties agree to reverse the transaction at a future point in time, when the CNB as borrower repays the principal of the loan plus interest and the creditor bank returns the collateral to the CNB. The basic duration of these operations is 14 days; the two-week repo rate (2W repo rate) is therefore considered to be of key importance in terms of monetary policy. Repos with shorter maturities are executed from time to time depending on the forecasts of banking sector liquidity. Owing to the systemic liquidity surplus in the Czech banking sector, 2W repo tenders are currently used exclusively for absorbing liquidity.
  The CNB conducts variable rate tenders, which means that the declared repo rate serves as the maximum limit rate at which banks' bids can be satisfied in the tender. The bids are ranked using the American auction procedure, i.e. those with the lowest interest rate are satisfied as having priority and those with successively higher rates are accepted until the total predicted liquidity surplus for the day is exhausted. If the volume ordered by the banks exceeds the predicted surplus, the CNB either completely refuses the bids at the highest rate or reduces them pro rata. Repo tenders are usually announced three times a week at around 9.30 a.m. Banks may submit their orders - i.e. the amounts of money and the interest rates at which they want to enter into transactions with the CNB - within a prescribed time. The minimum acceptable volume is CZK 300 million. Bids exceeding the minimum must be expressed as multiples of CZK 100 million.
• The supplementary monetary instrument is the three-month repo tender. Here, the CNB accepts liquidity for a three-month period. The three-month repo tender again uses the American auction procedure (see the two-week repo tender). In these operations, the CNB does not intend to send signals to the market and therefore the three-month repo rate used for this tender is not the CNB's rate but the money market rate in effect at the time of calling the tender. At present this instrument is not used. The last three-month tender was called in January 2001.
• Fine-tuning instruments (foreign exchange operations and securities operations) are used ad hoc, mainly to smooth the effects on interest rates caused by unexpected liquidity fluctuations in the market. These instruments are rarely used.

Click here for the  recent open market operations .

Automatic facilities

Automatic facilities are used for providing and depositing liquidity overnight. As, from the banks' point of view, these represent standing facilities for depositing or borrowing money, the interest rates applied to them form the corridor for short-term money market rates (as well as for the two-week repo rate).

• The deposit facility is a non-collateralised standing facility which banks may use to make overnight deposits of surplus liquidity with the CNB. A bank has right of access to the deposit facility provided that it requests the CNB's Interventions Division to execute the transaction no later than 15 minutes before the end of the CERTIS system clearing day. The minimum volume is CZK 10 million. Amounts exceeding this limit are accepted without further restrictions. The deposits are remunerated at the discount rate, which generally provides a floor for short-term interest rates on the money market.
• The marginal lending facility is a standing facility which banks that have a general repo agreement with the CNB may use to obtain overnight liquidity from the CNB in the form of repos. A bank has right of access to the lending facility provided that it requests the CNB's Interventions Division to execute the transaction no later than 25 minutes before the end of the CERTIS system clearing day. The minimum volume is CZK 10 million. Amounts exceeding this limit are provided without further restrictions. The interest rate applied to this facility is the Lombard rate. Owing to a persistent liquidity surplus, banks make minimal use of this facility. The Lombard rate provides a ceiling for short-term interest rates on the money market. The CNB may at any time, for extraordinary monetary-policy reasons, temporarily limit or completely suspend the provision of Lombard loans. 

Extraordinary facilities

In autumn 2008, the CNB introduced extraordinary liquidity-providing repo operations with two-week and three-month maturities aimed at fostering the functioning of the government bond market. From January 2011, only the liquidity-providing repo operation with two-week maturity remains in place.

More details on these operations.

Minimum reserves

Every bank, building society and foreign bank branch that has a banking licence in the Czech Republic or intends to operate in the Czech Republic on the basis of the "Single Licence" is required to hold a pre-specified volume of liquid funds - known as minimum reserves - on its account with the CNB. At present, each bank holds its minimum reserves on its account with CNB Clearing ("payment system account") and also on a deposit and withdrawal account if such an account has been opened. The reserve requirement is 2% of the base used for calculating the minimum reserves. Effective from 12 July 2001, the reserve base is the volume of bank's primary liabilities (chiefly deposits from non-banks) with maturity up to 2 years. Each bank is required to maintain over a maintenance period (of approximately one month - starting on the first Thursday of the respective month and ending on the Wednesday before the first Thursday of the following month) an average end-of-day balance on its minimum reserves accounts equal to or greater than the reserve requirement set for the given maintenance period. Since 12 July 2001, the funds on this account have been remunerated at the CNB two-week repo rate up to the pre-specified volume of minimum reserves (before this date they were not remunerated).

The reserve requirement is currently of little significance as a monetary policy instrument, but the money held on these accounts fulfils another important role: it serves as a cushion for the smooth functioning of the interbank payment system at CNB Clearing. In 1999, the CNB completed the process of gradually lowering its reserve ratio to 2%, which is equal to that set for the Eurosystem by the European Central Bank.

To keep the interbank payment system functioning smoothly following the lowering of the reserve requirement to its present level, a collateralised (i.e. extended to banks in exchange for securities) intraday credit facility was introduced after the reserve requirement was lowered. Within this facility, the CNB - as the operator of the payment system and the short-term bond settlement system - provides short-term intraday credit to banks to enable them to make payments even if they do not have sufficient funds on their payment system accounts with the CNB. No interest is charged on intraday credit and there is automatic spillover into the marginal lending facility in the event of non-repayment.

Monetary policy instruments

The main instruments of monetary policy - history of settings

Download the history of settings of the main monetary instruments in xls format (xls, 72 kB)

Download the history of discount rate in txt format 

Download the history of lombard rate in txt format

Download the history of 2W repo rate in txt format