Monetary Policy Instruments in Slovenia

The monetary policy process has two stages: (1) setting the value of intermediate or final monetary targets on the basis of available information, and (2) setting the instruments of monetary policy in order to neutralize stochastic disturbances and to render the actual value of the intermediate target as close as possible to the targeted value. After becoming independent, Slovenia had to establish an independent central bank and create effective instruments of monetary policy. Slovenia did away with the nonmarket instruments of monetary policy that were used in the former Yugoslavia. Old, selective instruments of monetary policy were replaced by new instruments: an open market policy, Lombard loans, minimum reserve requirements, bills with warrants, twin bills, and foreign currency bills. Slovenia must use open-market policy instruments as the core instrument; the fiscal component should be eliminated; minimum reserve requirements should not change frequently due to fluctuations deriving from reserve ratio movements; refinancing policy should have a safety valve function to satisfy unexpected demand for the central bank's money.