Amended Rules on Special Reserve Requirements for New Foreign Currency Inflows
The Rules on Special Reserve Requirements for New Foreign Currency Inflows, no. 490/2016, have been amended with Rules no. 963/2018, as is stated in the announcement on the Law and Ministerial Gazette (Stjórnartíðindi) website. The Rules are set upon approval from the Minister of Finance and Economic Affairs and upon prior presentation to the Monetary Policy Committee and the Systemic Risk Committee. The amendments entail a reduction in the special reserve ratio provided for in the Rules, from 40% to 20%.
The special reserve requirement on capital inflows into the bond market and into high-yielding deposits was introduced in June 2016, with the aim of tempering and affecting the composition of foreign-denominated capital inflows into the domestic bond market and high-yielding deposits, and of strengthening the monetary policy transmission mechanism. Conditions have now developed that permit a reduction in the special reserve ratio, with a narrowing of the interest rate differential with abroad and a lower exchange rate.
It should be noted that the aforementioned amendments lead as well to a reduction on the special reserve amounts already held in accounts subject to the special reserve requirement, and investors that own such funds may request payment of the difference in the recalculated special reserve amount.
Further information on the amendments can be obtained from Governor Már Gudmundsson at the press conference on the Monetary Policy Committee decision, to be held at 10:00 hrs. on Wednesday 7 November 2018.