Public Debit Repurchasing Operations-Repo
Repurchase agreements’ operations comprise purchases of assets by the central bank under a contract providing for their resale at specified price on a given future date (limited to two weeks or one month as per Circular No. 49 of 2002), and are used to supply reserves. Repos are conducted in domestic government securities, that is, loans backed by domestic assets.
Strictly speaking, repurchase transactions are classified as indirect money market instrument as they are usually initiated by commercial banks, operate through market mechanisms, and serve to manage primary liquidity in the banking system. Yet, although QCB sets the rate and duration for repurchase agreements (a characteristic of money market instruments), the QCB Repo Rate (QCBRR) is known in advance and the size and timing of the repurchase transactions are rather initiated by commercial banks. Repurchase agreements provide commercial banks with means for longer-maturity source of fund (i.e., than a single day) at higher interest rates. As such, QCBRR is a marginal rate that helps to guide the longer-term interbank money market rates.
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