The Bank can change required reserve ratios and thereby change the ability of the banking system to extend credit or loans. This policy measure, however, is seldom adopted as a small change in required reserve ratios can have a great impact on the monetary aggregates and market interest rates. On several occasions when the Bank adjusted required reserve ratios, it also conducted open market operations to lessen the impacts.
In addition to adjusting required reserve ratios as one of its monetary policy measures, the Bank also continuously reforms the reserve requirement system in line with the changing financial environment, regulatory needs, and international practice. Major improvements of the system that have either been completed or are still underway include the following:
Required reserve ratios have been lowered gradually on a timely basis.
The gap between the required reserve ratios for demand deposits and time deposits has been narrowed in order to remove distortion.
Reserve liabilities have been broadened from bank deposits to all kinds of bank liabilities.
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