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NORGES BANK: Maintains Banking System Reserves At Avg NOK35bln

NORGES BANK
Central Bank NewsCEEMEANorges BankBulletNorwayMarketsFixed Income BulletsForeign Exchange Bullets

Norges Bank will aim to maintain banking system reserves at an average of NOK35bln, with a symmetric interval of +/-NOK5bln around this level. The total reserve quota (the maximum amount of total bank reserves that bank can be renumrated at the deposit rate) is set at NOK45bln.

  • Previously, if Norges Bank's foreign exchange asset portfolio increased in value, the central bank would issue debt on behalf of the Government to prevent an increase in banking system reserves.
  • As of this year, the government is no longer issuing government bonds to sterilise increases in banking system reserves. As such, Norges Bank has elected to sell foreign exchange (i.e. cap the asset side of its balance sheet) to keep banking reserves contained. The mechanism by which this occurs is sketched out in the following:
    • Norges Bank's foreign exchange assets increase in value. On the liability side of the balance sheet, the bank's capital increases.
    • Norges Bank sells FX (i.e. purchases NOK) to cap the foreign exchange asset side of the balance sheet. On the liability side, this drains NOK central bank reserves from the system.
    • Norges Bank's foreign exchange assets are now unchanged from before the increase in value. On the liability side, the proceeds from FX sales (reflected as an increase in the bank's capital) are transferred to the Government's account.
    • As the Government spends this money, it will filter back into central bank reserves. At the end of the process, the asset/liability mix is unchanged.
  • In March, Norges Bank will sell NOK126mln/day of FX to fund the transfer of dividends to the government (i.e. buy NOK). However, this is offset by NOK400mln/day of regular FX purchases (i.e. sell NOK) on behalf of the government to place into the Government Pension Fund Global (since petroleum revenues exceed the amount needed to finance the non-oil budget deficit). As such, net purchases of FX in March will amount to NOK274mln/day (i.e. sell NOK). 
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Norges Bank will aim to maintain banking system reserves at an average of NOK35bln, with a symmetric interval of +/-NOK5bln around this level. The total reserve quota (the maximum amount of total bank reserves that bank can be renumrated at the deposit rate) is set at NOK45bln.

  • Previously, if Norges Bank's foreign exchange asset portfolio increased in value, the central bank would issue debt on behalf of the Government to prevent an increase in banking system reserves.
  • As of this year, the government is no longer issuing government bonds to sterilise increases in banking system reserves. As such, Norges Bank has elected to sell foreign exchange (i.e. cap the asset side of its balance sheet) to keep banking reserves contained. The mechanism by which this occurs is sketched out in the following:
    • Norges Bank's foreign exchange assets increase in value. On the liability side of the balance sheet, the bank's capital increases.
    • Norges Bank sells FX (i.e. purchases NOK) to cap the foreign exchange asset side of the balance sheet. On the liability side, this drains NOK central bank reserves from the system.
    • Norges Bank's foreign exchange assets are now unchanged from before the increase in value. On the liability side, the proceeds from FX sales (reflected as an increase in the bank's capital) are transferred to the Government's account.
    • As the Government spends this money, it will filter back into central bank reserves. At the end of the process, the asset/liability mix is unchanged.
  • In March, Norges Bank will sell NOK126mln/day of FX to fund the transfer of dividends to the government (i.e. buy NOK). However, this is offset by NOK400mln/day of regular FX purchases (i.e. sell NOK) on behalf of the government to place into the Government Pension Fund Global (since petroleum revenues exceed the amount needed to finance the non-oil budget deficit). As such, net purchases of FX in March will amount to NOK274mln/day (i.e. sell NOK).