What is the Complementary Deposit Facility?
Under the Complementary Deposit Facility, the Bank applies interest rates to financial institutions' excess reserves (current account balances and special reserve account balances at the Bank in excess of required reserves under the reserve requirement system). This facility was introduced in October 2008 as a temporary measure to facilitate the Bank's provision of liquidity. Since then, the scheme of operations under this facility has been modified several times.
Since January 2016, when Quantitative and Qualitative Monetary Easing (QQE) with a Negative Interest Rate was introduced, the outstanding balance of each financial institution's current account at the Bank has been divided into three tiers, to which a positive interest rate, a zero interest rate, or a negative interest rate has been applied.
For details of QQE with a Negative Interest Rate, see Introduction of "Quantitative and Qualitative Monetary Easing with a Negative Interest Rate" and its reference, Key Points of Today's Policy Decisions, both released on January 29, 2016.
Complementary Deposit Facility as a Monetary Policy Tool
By applying a negative interest rate to part of the balances in current accounts held by financial institutions at the Bank, the Bank exerts downward pressure on money market rates, thereby lowering the short end of the yield curve into negative territory. By exerting further downward pressure on interest rates across the entire yield curve through a combination of a negative interest rate and large-scale purchases of JGBs, this could have a favorable impact on the economic activity of firms and households.
Financial Institutions Eligible for the Facility
Financial institutions eligible for the facility ("Eligible Institutions") are those subject to the reserve requirement system and those that are not subject to the system but have current accounts at the Bank.
Interest Rate
The interest rate applied to the Complementary Deposit Facility is decided and changed at Monetary Policy Meetings. The Bank has adopted a three-tier system in which the outstanding balance of each financial institution's current account at the Bank is divided into three tiers. The interest rate applied to each tier varies. For more details, see Introduction of "Quantitative and Qualitative Monetary Easing with a Negative Interest Rate" and its reference, Key Points of Today's Policy Decisions, both released on January 29, 2016.
Related Pages
For modifications of the scheme of operations under the Complementary Deposit Facility, see Complementary Deposit Facility.
