The Bank of Ghana has announced a set of guidelines to be adopted to help facilitate the short-term trading of government securities between dealers as well as investors, ABC News can report.
The announcement was made at the ongoing World Bank/IMF Annual Meetings in Washington DC, USA by Governor of the Bank of Ghana, Dr. Ernest Addison.
He noted that the guidelines are based on the standard 2011 Global Master Repurchase Agreement (GMRA).
“The introduction of the Guidelines is expected to deepen the financial markets in Ghana through the promotion of a more vibrant and liquid secondary bonds market,” he said.
“The title transfer under GMRA will 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 at maturity. This will boost secondary trading and price discovery of bonds and offer a cheaper and increased source of short-term funding.
“The guidelines, among others, specify a wider array of eligible collateral securities and would promote a more liquid repo market. The eligible participants have also been expanded to cover not only banks but SDIs, securities dealers, corporates and high net worth individuals,” he averred.
As of August 2019, data from the Central bank showed that the stock of repos (repurchase agreement) and reverse repos outstanding between the Bank of Ghana and the commercial banks in Ghana was equivalent to US$350 million.
The governor stated that when properly structured, repos will serve as effective vehicles for the monetary policy transmission process, as well as, a vehicle through which the central bank can act more swiftly as a lender of last resort during periods of market stress.
A repurchase agreement (repo) is a form of short-term borrowing for dealers in government securities.
In the case of repo, a dealer sells government securities to investors, usually on an overnight basis, and buys them back the following day at a slightly higher price.