Measures to enhance the efficiency of the Norwegian money market
Today Norges Bank presents measures to enhance the efficiency of the Norwegian money market.
“Risk premiums in money markets have generally been higher in Norway than in other countries, also in the post-crisis period. This indicates that interest rate determination in the market and interbank redistribution of liquidity are not functioning efficiently. The measures aim to boost activity in the short-term money market, enhance transparency and accessibility in interest rate determination and reduce money market premiums”, says Governor Svein Gjedrem.
Norges Bank is sending a letter and a consultative document to Finance Norway (FNO) with a view to changing the system for the management of banks’ borrowing and deposit facilities in Norges Bank. Under the new system, a defined volume of banks’ deposits in Norges Bank (a quota) will bear interest at a rate equivalent to the key rate (sight deposit rate). The interest rate on deposits in excess of this quota will be lower. This will enhance the redistribution of liquidity in the interbank market and boost activity in the shortest segment of the money market. The deadline for submission of comments is 17 November.
Norges Bank is also sending a letter to FNO urging FNO to take responsibility for establishing a more transparent and accessible system for banks’ calculations of money market rates, referred to as NIBOR quoting. In the view of Norges Bank, NIBOR quoting should follow international practice with a formalised and official set of rules.
“This is an open consultation. We invite the banks to work constructively with Norges Bank to enhance the efficiency of the Norwegian money market”, says Gjedrem.
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