Pending Discount Rate Policy - February 2025

[Stoppers]

A
MOTION
To

Discount Rate Policy - February 2025​

Submitted by: Stoppers
Date: 20 February 2025
Classification: Fiscal

1, Justification
The discount rate plays a critical role in influencing the broader economy by determining the cost at which commercial banks can borrow funds from the FRB. Adjustments to the discount rate impact lending rates, liquidity levels, and overall economic stability. To ensure a structured and transparent borrowing mechanism, a detailed process must be established for financial institutions seeking funds. This policy aims to formalize the borrowing procedure, ensuring efficiency, risk mitigation, and compliance with regulatory standards.

2. Discount Rate Policy
(i) The discount rate is the interest rate at which commercial banks may borrow funds from the FRB. By adjusting the discount rate, the FRB influences the cost of borrowing for banks and, consequently, lending rates in the broader economy.
(ii) The discount rate is hereby set at 4.5%. This rate is subject to periodic review and adjustment based on economic conditions and monetary policy objectives.

3. Borrowing Process
3.1 Eligibility Criteria

• Only commercial banks approved by the FRB may access the discount window.
• Borrowing institutions must comply with our financial regulations.
• Institutions under regulatory sanctions by the Department of Commerce or the Federal Reserve Bank (FRB) or in financial distress may be subject to additional scrutiny or restrictions.

3.2 Application Procedure

• Borrowing institutions must submit a formal request via the designated borrowing portal or direct communication channels specified by the FRB.
• Each request must include:
  • The amount sought
  • Proposed collateral
  • Purpose of borrowing
  • Repayment schedule
• The FRB reserves the right to approve, modify, or reject any request based on risk assessment and prevailing economic conditions.

3.3 Loan Approval and Disbursement

• Upon submission, the FRB will review the application within 72 hours.
• If approved, a loan agreement detailing the terms, interest rate, collateral obligations, and repayment schedule will be provided to the borrowing institution.
• Funds will be disbursed within 24 hours of agreement execution.

3.4 Repayment Terms and Monitoring

• Borrowed funds must be repaid as per the agreed-upon schedule.
• Late repayments will incur penalties as outlined in the loan agreement.
• The FRB reserves the right to request additional collateral or take corrective actions in case of non-compliance.

4. Implementation
Within 24 hours of the Board's approval, the FRB shall notify relevant financial institutions and staff to implement these changes, ensuring seamless execution and compliance with the policy.