B.P. 705 BUJUMBURA Tél: (257) 22222744 - Fax: (257) 22223128 - E-mail: firstname.lastname@example.org
The monetary policy framework of the Bank of the Republic of Burundi is characterized by the targeting of monetary aggregates and the use of indirect instruments to control money supply and ensure price stability. In the implementation of monetary policy, the BRB uses the monetary base as an operational target, assuming a stable linear relationship both between the monetary base and money supply M2, and between the M2 money supply and the general price level.
The M2 money supply is the intermediate target of monetary policy that allows achieving the ultimate goal of price stability. To act on the intermediate target M2, the Central Bank shall, within the framework of economic and financial program, set the quantitative target for monetary base. The level of the monetary base set is controlled through the quantitative targets of net domestic and foreign assets using these following indirect instruments of monetary policy:
It is a requirement for commercial banks to establish separately in their current accounts in BIF, in U.S. Dollars (USD) and Euros (EUR), opened in the books of the Bank of the Republic of Burundi, the required reserves in the form of unpaid deposits. Required reserves are used to control money creation by commercial banks.
They are calculated on the basis of deposits on current and saving accounts made in BIF and foreign currency by bank clients from their monthly accounting statements submitted to the Bank of the Republic of Burundi.
Reserve requirements on deposits in BIF, U.S. Dollars (USD) and euros (EUR) are made in the same currencies. Reserve requirements on deposits denominated in other currencies are made in U.S. Dollars (USD).
The required reserve ratio, currently set at 3%, is determined by the Bank of the Republic of Burundi and communicated to banks through a circular letter.
The period of minimum reserve extends from the first to the last day of each month.
The amount of reserve requirements of each bank is the monthly average of daily credit balances in BIF, USD and EUR current accounts, opened in the books of the Bank of the Republic of Burundi. For holidays, the balance to be considered is that of the last working day. Average balances of these accounts must be at least equal to the respective amounts of required reserves.
The Central Bank monitors liquidity through operations of tenders for delivery and resumption of liquidity which it sets the duration (usually 7 days) and frequency. Tenders liquidity may be at fixed or variable rate. In the case of fixed rate tenders, BRB announces the interest rate at which all banks present their bids. In variable rate bidding, each bank indicates the amount it wishes to borrow or invest, as applicable, and the corresponding rates.
By calls for liquidity-providing, at a fixed rate or variable rate tender, the BRB grants temporary advances to banks.
When the tender is fixed rate, each bank is served for the full amount she asked as long as the sum of bids is less than or equal to the amount that the BRB is willing to provide. If the total of bids is greater than the amount set by the BRB, banks are paid in proportion to their respective claims on the basis of a percentage equal to the ratio between the amount awarded and the total amount tendered.
When the tender is at variable rates, bids are ranked in descending order of rates and are satisfied starting with those that are accompanied by higher interest rates until the total amount of cash to provide. If, at the lowest accepted interest rate, called marginal rate, the cumulative total bid exceeds the remaining amount to be provided, it is allocated pro rata among the bids according to the ratio of the remaining amount and the total bids at the marginal rate. Once the allocations, the BRB can apply the method of single rate auction or multiple rate method, as announced in the tender. In the first case, all selected banks are paid at the same rate, in principle, the marginal rate of the tender. In the second case, banks are paid to corresponding rates in each of their bids.
After opening of tenders and auctions, the BRB notify each bidder bank amounts allocated to it and the interest rate that will be counted. The total amount is credited to the current account on the date value specified in the tender. At redemption date announced in the tender, the current account of the relevant bank is charged the full amount awarded and interest.
This instrument is to suggest the banks by way of tender, place within the Central Bank cash deposits paid for the time specified in the tender.
When the tender is fixed and if the sum of bids is less than or equal to the amount that the BRB has decided to withdraw, the offer of each bank is total. If the total of bids is greater than the amount set by the BRB, the respective offers are made pro rata on the basis of a percentage equal to the ratio between the amount awarded and the total amount offered.
When the tender is at variable rates, bids are ranked in order of increasing rate and are satisfied starting with those that are accompanied by the lowest interest rates until the total amount of cash to withdraw. If, at the highest interest rate chosen, called marginal rate, total bid exceeds the remaining amount to withdraw, it is allocated pro rata among the bids according to the ratio of the remaining amount and the total bids at the marginal rate.
Once the allocations, the BRB can apply either single rate auction method or the method to multiple rates (as it is announced in the invitation to tender). In the first case, all successful bids are taken at the same rate, in principle, the marginal rate of the tender. In the second case, the banks are paid at rates corresponding to each of their bids.
After opening of tenders, the BRB notify each bidder bank amounts it can deposit and the interest rate that will be applied. The total amount is debited from the current account on the date value specified in the tender. At redemption date announced in the tender, the current account of the bank will be credited the full amount of the deposit plus interest.
At its own initiative, the BRB can lend or resume liquidity to banks by means of quick tenders which all the steps are performed on the same day. The duration of these operations is determined by the BRB. Participation in quick tenders may be limited to certain banks.
Marginal lending facility
BRB provides banks a permanent marginal lending rate at which they can use in their initiative to get cash overnight in money market interest rates (currently the weighted average interest rate on 13 weeks Treasuries of the previous issue) plus a previously announced margin (currently three percentage points).This facility is granted, if at the end of the day, the current account balance from one bank to the BRB is debtor and it has provided adequate security.
The amount allocated under this facility is credited the same day on the bank account. The repayment of this amount and the interest payments occur on the next business day. If deemed necessary, the BRB may set limits to use this facility. These limits can be global or specific to a bank and focus on their loan amounts or the number of days of use per week.
In addition to these instruments, the BRB may exceptionally grant a loan to a bank or a financial institution in the framework of bilateral agreements.