The recently announced guidelines for repo trading on the Ghana Fixed Income Market (GFIM) will be operationalized from April 2020.
A well-functioning repo market will expectedly contribute to the efficient allocation of capital in the real economy by supporting liquidity in domestic economic markets.
Speaking at the official launch of the guidelines in Accra yesterday, the Governor of the Bank of Ghana, Dr. Ernest Addison said, the Global Master Repurchase Agreement (GMRA)-based Guidelines contain a key feature which allows the transfer of title to collateral securities from the seller to the buyer.
The title transfer under GMRA is expected to reduce credit and liquidity risk as it allows the buyer to make use of the collateral during the tenor of the transaction, but return the same or equivalent securities to the seller at maturity.
Ultimately, these dealings should boost secondary market trading and price discovery of bonds and offer a cheaper and increased volume source of short-term funding.
“When properly structured to preserve its risk mitigating features, repos become effective tools for effective monetary policy transmission and serve as the channel through which the central bank can act more swiftly as a lender of last resort during periods of market stress,” He said.
Currently, repos and reverse repos in the domestic financial markets are already serving as effective instruments for the conduct of monetary policy market operations by the central bank and as sources of short term liquidity for market participants.
As at September 2019, the stock of repos and reverse repos outstanding between the Bank of Ghana and universal banks was GHc1.9 billion, while the volume of overnight interbank trading among universal banks amounted to GHc27 billion as at the third quarter of this year.