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South African Reserve Bank

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2010-08-26: Media release: South African Reserve Bank's monetary policy operational procedures
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South African Reserve Bank’s monetary policy operational procedures
The South African Reserve Bank’s (Bank) monetary policy operational framework is continuously reviewed and assessed for efficiency and effectiveness.
The most recent review also took into account some challenges occasionally encountered in the conduct of open-market operations (OMOs).  A lower level of participation in the auctions for SARB debentures and longer-term reverse repos has resulted in a decline in the money market shortage, which has affected the efficiency of the  monetary policy operational framework.
After consultation with market participants, a number of refinements to the monetary policy implementation framework have been identified, including new measures aimed at streamlining the daily monetary policy operations.  These changes are operational in nature and do not in any way reflect on the monetary policy stance of the Bank.
With effect from 30 August 2010 the following changes to the Bank’s monetary policy operations will be implemented:
1.    The Bank will discontinue its current practice of announcing the estimated ranges of the weekly liquidity requirement.  In future only the daily average of the estimated weekly liquidity requirement will be announced to the market when the weekly main repo auction is conducted.  There will also be a daily announcement to the market of the actual liquidity requirement of the previous day.  This announcement will be made at 09:00 on every business day. 
2.   The use of Category 2 assets as eligible collateral in the Bank’s refinancing operations will be phased out. Maturing Category 2 assets will not be replaced with bonds from the All-bond index (Albi).  With effect from 1 March 2011 Category 2 assets will no longer be accepted as collateral for the Bank’s refinancing operations.  The future use of assets other than prescribed liquid assets as collateral for refinancing purposes will be determined by prevailing exceptional market conditions.
3.   A new automated final end-of-day square-off process at prevailing standing facility rates will be introduced to replace current manual auctions.  This change will affect the SAMOS penalty facility, which will be abolished as a consequence.
4.  The spread between  the rates for standing facilities and the repo rate will be widened from the current 50 basis points to 100 basis points below and above the prevailing repo rate.
During the month of August the Bank started to use longer-term foreign exchange swaps with maturities of up to 12 months as an instrument to manage money market liquidity more effectively.  The consequence of conducting longer-term foreign exchange swap transactions to drain liquidity from the market is that the Bank will reflect an overbought forward position on its monthly releases of official gold and foreign exchange reserves. 
The Operational Notice guiding the Bank’s money market operations has been updated to reflect the above changes to the Bank’s market operations and is published on the Bank’s website.
Mr Callie Hugo                                                 
Tel:  +27 12 313 4755                                    


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