The central bank said on Thursday that its board has changed the calculation of interest on required reserves, tying it to the European Central Bank's deposit facility rate, which is currently set at zero.
"Interest rates on financial instruments that are considered safe are currently zero or even negative in the markets. Therefore, we have changed the interest rate calculation base for required reserves. As a result of this, commercial banks will be paid no interest on their required reserves held at the Bank of Lithuania, at least for some time," Vitas Vasiliauskas, the central bank governor, said in a press release.
Until now, with the rate tied to the ECB's main refinancing operations interest rate, the Bank of Lithuania paid credit institutions 0.75 percent interest. Last year, it paid 4.5 million litas (EUR 1.3m) in interest to commercial banks alone.
The lowering of the percentage of deposits that banks are required to hold as reserves to 3 percent will free up to around 500 million litas of funds in the banking system, the central bank said.
The required reserve ratio in the eurozone is currently 1 percent.
