Under this setup, the overnight market rate (represented by the BIST overnight repo
interest rate) can exhibit larger fluctuations inside the corridor and can move far away from the CBRT average funding rate (Figure 1).
The foremost reason behind this change in SBP's operational framework is to avoid excessive volatility in the money market overnight repo
rate as this may create disconnect between short and long-term interest rates in the economy.3
The central bank announced a new benchmark interest rate, the overnight repo
rate, on Wednesday and set it at 12 percent with immediate effect.
The bank also said it will trim its discount rate to 3.75 percent, instead of 4 per cent, and overnight repo
rate to 3.5 per cent, down from 3.75 per cent, as of Thursday.
The central bank announced a new target for the overnight repo
rate at 50 basis points or half a percentage point below the benchmark to better manage liquidity in the interbank market as part of the IMF loan program.
In order to prevent excessively worsening of liquidity conditions, which would have impacted financing conditions, RBI undertook measures to inject liquidity through OMO purchase auctions, overnight repo
, MSF and variable rate term repos.
As of the same date, taxable money funds transacted a total of $148.9 billion of overnight repo
backed by Treasury or agency securities with counterparties other than the Fed for rates between 0 and 3 basis points.
The RBI currently sets monetary policy through rates for its overnight repo
and reverse repo operations.
The overnight repo
rate closed at 4.30 percent on a weighted-average basis on Monday but individual trades occurred as high as 9 percent.
Combine the overnight repo
market with the collateralized portion of the derivatives markets and we have a financial market bigger than the FDIC-insured banking system.
At the overnight repo
auction the limit of 290 bln rubles remained untaken for the first time after many days
If a Tobin tax induced financial institutions to finance themselves with more longer-term debt and less overnight repo
, it could play a significant stabilizing role.