Monetary Operations Objectives

We conduct monetary operations to support the Monetary Policy Committee (MPC)'s decision. The monetary operations enable the NBC to influence liquidity conditions in the banking system, guide short-term interest rates, support the functioning of domestic money markets, and deepen the riel liquidity management. These operations also facilitate smooth functioning of payment and settlement systems and the broader financial sector.

1. Manage Banking System Liquidity to Guide Short-Term Interest Rates

The NBC’s monetary operations aim to ensure that the banking system has adequate liquidity, neither excessive nor insufficient.

To achieve this, the NBC:

• absorbs liquidity through issuing central bank bills or selling government bonds,
• injects liquidity through collateralized lending, repo operations, or buying government bonds,
• monitors market activity to maintain orderly conditions.

The NBC use liquidity management tools, such as the issuance of central bank securities, repo, liquidity facilities, and market operations, to influence monetary conditions in the banking system. Even in a dollarized economy, these operations help guide market rates and preserve the riel's stability.

By managing liquidity, the NBC seeks to ensure that short-term interest rates reflect its monetary stance and reduce temporary fluctuations in liquidity demand, thereby supporting the transmission of policy decisions to market participants.

2. Enhance Effective of monetary policy transmission

The National Bank of Cambodia’s monetary operations are designed to ensure that monetary policy decisions are transmitted efficiently to the banking sector and the broader economy. This objective focuses on the design and calibration of monetary instruments so that policy intentions are reflected in short-term market interest rates and liquidity conditions.

A central element of this framework is the Interest Rate Corridor, which helps guide short-term market rates within a defined range. By setting standing facility rates that form the upper and lower bounds of the corridor, and by conducting liquidity operations within this range, NBC provides a clear anchor for money market pricing and limits excessive volatility in short-term interest rates.

Through active liquidity management (such as using central bank securities, reserve requirements, and liquidity-providing or absorbing operations), the NBC seeks to align market rates with its policy reference signals. As these instruments operate within the interest rate corridor, they reinforce the consistency and predictability of monetary policy transmission.

By strengthening the interest rate corridor framework and supporting its interaction with market operations, the NBC enhances the effectiveness of its monetary tools and promotes greater use of market-based interest rate pricing in the banking system.

3. Develop Domestic Money Markets and Infrastructure

In parallel, NBC’s monetary operations pursue a longer-term objective of developing deep, liquid, and resilient domestic money markets, with particular emphasis on the riel interbank market.

Well-functioning money markets allow financial institutions to manage liquidity efficiently, redistribute funds across the system, and price short-term rate accurately. Money market refers to transactions of interbank lending and risk management tools. To support this development, NBC promotes interbank transactions, encourages lending, and supports the issuance and trading of standardized short-term instruments. These efforts contribute to building a reliable riel yield curve and strengthening market infrastructure.

Over time, deeper and more active interbank markets improve banks’ liquidity management, enhance risk discipline, reduce funding cost, and increase confidence in the use of the riel. This structural development is essential for reducing reliance on foreign currencies, strengthening monetary sovereignty, and ensuring that monetary policy operates through market mechanisms rather than administrative channels.

The NBC’s market operations support the broader financial market development by:

• Encouraging the growth of a money market, which refer to liquid interbank lending and risk management tools;
• Promoting the use of domestic currency in financial transactions;
• Supporting the establishment of market benchmarks and reference rates.