Facility), which was used more often by nonbanks than banks. Early in 1998, the financial system came under stress when social unrest prompted the government to allow the public to withdraw their retirement savings from the Vanuatu National Provident Fund (VNPF). In response to a sharp rise in liquidity in the financial system, the RBV introduced liquidity asset ratios, the so-called Prescribed Reserve Asset (PRA) requirement. The PRA required banks to hold 16 percent of vatu deposit liabilities in the form of government securities and/or RBV notes. In addition, the
’s access to liquidity and supporting the government’s rehabilitation efforts. The RBV took swift action and agreed to tie its policy rate to the 91-day RBV Note (variable) rate, which implied a decrease from 5.25 percent to about 1.85 percent, and to reduce the Statutory Reserve Deposit (SRD) requirement, which comprises reserve deposits of commercial banks held as reserves at the RBV, from 7 to 5 percent. Additional measures were taken, including the activation of an additional credit facility for commercial banks, an interest rate decrease on the RBV’s Secured Advance
holdings of government bonds, as well as RBV notes, demand deposits, and cash. Around the same time the RBV began issuing its own Reserve Bank notes, having a 91 day maturity. In addition, during May the Reserve Bank raised its minimum lending rate from 5 percent to nearly 11 percent. This action helped restore confidence and reduced pressure on the exchange rate. In November 1998 the Reserve Bank reintroduced the SRD at the rate of 10 percent on vatu deposits and reduced the PRA to 6 percent. In addition, a repurchase facility, covering short-term government bonds and
banks could count their holdings of government bonds, as well as RBV notes, demand deposits, and cash. Around the same time the RBV began issuing its own Reserve Bank notes, having a 91 day maturity. In addition, during May the Reserve Bank raised its minimum lending rate from 5 percent to nearly 11 percent. This action helped restore confidence and reduced pressure on the exchange rate. In November 1998 the Reserve Bank reintroduced the SRD at the rate of 10 percent on vatu deposits and reduced the PRA to 6 percent. In addition, a repurchase facility, covering short
the use of direct instruments when faced with difficulties in controlling liquidity . The National Reserve Bank of Tonga (NRBT) used reserve requirement control and credit ceilings to deal with the rapid monetary growth in the late-1990s. Since then, the NRBT has often relied on the reserve requirement ratio and credit ceilings to control the liquidity. Similarly, the Reserve Bank of Vanuatu (RBV) introduced LAR to induce commercial banks in holding government securities and/or the RBV notes (the central bank securities). Background Event