The Central Bank said yesterday that with the adoption of the euro and the transfer of responsibility for monetary policy to the European Central Bank (ECB), as from today, banks established in Malta will have to comply with the minimum reserve requirements set by the Governing Council of the ECB.

Minimum reserve requirements are a monetary policy tool used by central banks to influence growth in money and credit. They also contribute to maintaining stable money market interest rates.

In preparation for this development, on November 2, 2007, the bank had amended the Central Bank of Malta Directive No. 1, which governs minimum reserve requirements.

The amendments catered for the introduction of an exceptional maintenance period running from November 15, 2007 to December 31, 2007. They also changed the method used in the computation of minimum reserve requirements, redefined the reserve base to align it with that used in the euro area and linked the remuneration of reserve deposits directly to the central intervention rate or the ECB's minimum bid rate, depending on the currency in which they were held. In addition, all exemptions previously granted in terms of the directive expired.

Thus, as from November 15, 2007 all credit institutions established in Malta were obliged to maintain reserve deposits with the bank.

The entry into force of the ECB's regulations on minimum reserve requirements as from today will result in a lowering of the current reserve requirement ratio from four per cent of the reserve base set in terms of the Central Bank of Malta Directive to two per cent laid down in the relevant ECB regulation.

Moreover, credit institutions established in Malta will be allowed to deduct liabilities to other credit institutions established in the euro area from their respective reserve base.

It is expected, however, that this will have a negligible impact on domestic financial and monetary conditions, as the funds released are likely to be invested in the euro area money markets, the bank said.