The Inventory System
Monetary Policy Instruments
Monetary Operations Strategy Team Financial Markets Operations Group December 2012 Under the inflation targeting framework, the Bank of Thailand (BOT) uses the 1-day bilateral repurchase rate as the key policy rate. The Monetary Policy Committee (MPC) signals shifts in monetary policy stance through announced changes in the policy rate. The BOT uses a variety of monetary policy instruments to implement MPC's interest rate decisions.
Monetary Policy Instruments
The BOT’s operational framework consists of a set of instruments which can be classified into three categories: 1. Reserve Requirements 2. Open Market Operations (OMOs) 3. Standing Facilities
1. Reserve Requirements
Commercial banks are required to maintain a minimum reserves on average over a fortnightly period, (starting on a Wednesday and ending on a second Tuesday thereafter, consistent with MPC meeting rounds1) with carry-over provisions, equaled to a specified percentage of the previous period's average level of commercial banks' deposits/liabilities base.
1
The MPC meets on Wednesdays every 6 or 8 weeks. The MPC meeting days, therefore, always coincide with the beginning of the reserve maintenance period. Such synchronization eliminates the possibility of policy rate changes during the maintenance period, and thus helps reduce volatility in reserves holdings at the BOT (current account balances) as the opportunity costs of holding reserves are approximately equal throughout the entire maintenance period.
1
The reserve base comprises deposits, borrowings through issuance of bills of exchange or promissory notes, short-term foreign borrowings maturing within one year and other borrowings with index-linked returns or embedded financial derivatives. Currently, the reserve requirements ratio is 6%, and reserves consist of the following assets: 1) A minimum 1% in nonremunerated current account deposits at the BOT, (of which no more than 0.2% in cash at the central cash
Monetary Operations Strategy Team Financial Markets Operations Group December 2012 Under the inflation targeting framework, the Bank of Thailand (BOT) uses the 1-day bilateral repurchase rate as the key policy rate. The Monetary Policy Committee (MPC) signals shifts in monetary policy stance through announced changes in the policy rate. The BOT uses a variety of monetary policy instruments to implement MPC's interest rate decisions.
Monetary Policy Instruments
The BOT’s operational framework consists of a set of instruments which can be classified into three categories: 1. Reserve Requirements 2. Open Market Operations (OMOs) 3. Standing Facilities
1. Reserve Requirements
Commercial banks are required to maintain a minimum reserves on average over a fortnightly period, (starting on a Wednesday and ending on a second Tuesday thereafter, consistent with MPC meeting rounds1) with carry-over provisions, equaled to a specified percentage of the previous period's average level of commercial banks' deposits/liabilities base.
1
The MPC meets on Wednesdays every 6 or 8 weeks. The MPC meeting days, therefore, always coincide with the beginning of the reserve maintenance period. Such synchronization eliminates the possibility of policy rate changes during the maintenance period, and thus helps reduce volatility in reserves holdings at the BOT (current account balances) as the opportunity costs of holding reserves are approximately equal throughout the entire maintenance period.
1
The reserve base comprises deposits, borrowings through issuance of bills of exchange or promissory notes, short-term foreign borrowings maturing within one year and other borrowings with index-linked returns or embedded financial derivatives. Currently, the reserve requirements ratio is 6%, and reserves consist of the following assets: 1) A minimum 1% in nonremunerated current account deposits at the BOT, (of which no more than 0.2% in cash at the central cash