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NBS moves to increase interbank liquidity

The National Bank of Slovakia (NBS) moved on June 25 to increase liquidity on the interbank money market, calling for the country's reference banks - the eight largest Slovak market players - to resume quoting obligatory volumes.
"We expect the reference banks to resume [quoting obligatory volumes] in July, following the agreement on obligatory quoted volumes and spreads," said Peter Andresič, head of the NBS's Open Market Operations Department.
The NBS has sharply reduced market liquidity to fight downward pressure on the Slovak crown over the past month by ceasing to hold its daily repo operations often used by banks for liquidity. The central bank eventually won the battle for currency stability, but the liquidity squeeze has virtually paralyzed trading in crowns.

The National Bank of Slovakia (NBS) moved on June 25 to increase liquidity on the interbank money market, calling for the country's reference banks - the eight largest Slovak market players - to resume quoting obligatory volumes. "We expect the reference banks to resume [quoting obligatory volumes] in July, following the agreement on obligatory quoted volumes and spreads," said Peter Andresič, head of the NBS's Open Market Operations Department.

The NBS has sharply reduced market liquidity to fight downward pressure on the Slovak crown over the past month by ceasing to hold its daily repo operations often used by banks for liquidity. The central bank eventually won the battle for currency stability, but the liquidity squeeze has virtually paralyzed trading in crowns.

Under the reference bank agreement, the eight banks are obliged to quote prices on up to 100 million Sk funds with a maturity of up to one month, up to 50 million Sk funds with a maturity of up to three months, and up to 25 million Sk funds with up to six months. The NBS expects quoted volumes to be smaller and spreads wider when the reference banks' agreement is valid again, Andresič said.

He continued that he expected higher liquidity to bring livelier trading to the local money market in July, once the reference bank system is back in place. He added that rates on the interbank market should edge higher in the first days of more liquid trading than they were before the attack on the crown.

"The rates are likely to be higher than they were before banks stopped quoting the Bratislava Interbank Offered Rate (BRIBOR) one month ago," Andresič said.

Banks last quoted BRIBOR on May 21, when overnight funds traded between 21 and 22 percent, one-week funds between 25.2 and 25.7 percent and three-month money at 21 to 22 percent. In early Tuesday trading, interbank rates funds hovered between 16.5 and 18 percent for most maturities.

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