The main objective of monetary policy is maintain price stability that is implemented by selecting the anchor currency in line with the provisions of the existing legislation and maintaining a fixed exchange rate. A fixed exchange rate in a small and open economy, such as Lithuania, helps to achieve relative price stability over a long-term.
Bank of Lithuania monetary policy and the application of relevant instruments have been determined by the fixed exchange rate of the litas, unrestricted exchange of the litas into the anchor currency and vice versa, and full backing of Bank of Lithuania liabilities in litas with gold and foreign exchange reserves.
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Bank of Lithuania
system of monetary policy instruments
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Provision of liquidity
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Absorption of liquidity
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Maturity
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Frequency
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Procedure; Settlement day
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Standing facilities
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Base currency buying
(introduced in April 1994)
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Base currency selling
(introduced in April 1994)
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-
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Access at the discretion of counterparities
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Bilateral procedures;
BoL buys the base currency with settlement at
T, T+21, and sells it with settlement at T+2
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Overnight repurchase transactions
(available since June 2004; substituted overnight loans which had been available since June 1998)
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Overnight
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At the discretion of a counterparty
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Bilateral procedures
(95% of value of eligible debt securities sold to BoL); T
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Collateralised liquidity loans and bilateral
repo transactions
(loans and bilateral repo transactions available
since June 1995 and January 1998, respectively)
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Non-fixed lending (1–3 months), bilateral
repo transactions up to 90 calendar days
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Non-regular, at discretion of counterparties
and subject to a decision of the Board of the BoL
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Bilateral procedures; subject to agreement
between counterparties
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Open market operations
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Time deposit auctions at the BoL
(may be executed since August 1997)
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Non-fixed, 7- and 14-day, used so far
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Non-fixed
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Multiple/single rate auctions; T
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Repurchase transaction auctions with BoL buying securities
from counterparties
(may be executed June 1997)
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Non-fixed, 7-day, used so far
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Non-fixed
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Multiple rate auctions; T+1
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Reserve requirements
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Stabilised liquidity of banking system
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The reserve base consists of commercial bank liabilities,
except liabilities to BoL and other commercial banks that
are subject to BoL reserve requirements. The reserve requirement ratio is 4
per cent. Zero reserve requirement ratio is applied to the
following: (1) deposits and equivalent liabilities with
agreed maturity over two years or redeemable at notice over
two years;
(2) debt securities issued with an agreed maturity over
two years, non-redeemable before maturity;
(3) repurchase transactions.
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Calculation and maintenance of reserves
requirements
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The reserve base
is calculated with respect to liabilities in litas and foreign
currencies on the basis of a bank balance sheet for the
last month preceding the month on which the reserve maintenance
period starts.
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Commercial banks have to hold required reserves in litas on the settlement accounts with the Bank of Lithuania.
Maintenance period: from the 24th calendar day
of a month to the 23rd calendar day of the consecutive
month, inclusive. The averaging method is applied. The Bank of Lithuania remunerates the holdings of the share of required reserves calculated according to reserve ratios applied by the ECB.
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