Repo exit from freezing / Repo value in 1401

According to Tejarat News, the Central Bank published the details of the implementation of the monetary policy in a report on August 10. The statistics show that after the open market operations that were implemented in July and the amount of repo remained constant at the level of about 60 thousand billion tomans, in the second auction held in August, it reached 65 thousand billion tomans with an increase of 5 thousand billion tomans.

Quoted from the world of economyThis increase in the amount of repo happened after the interest rate in the interbank market decreased by 0.2 percentage points and reached 21.13%.

On the other hand, the repo rate in the open market also decreased again and reached below 21%. It seems that with the repo rate reaching 20% ​​and its decrease from the interbank interest rate, and on the other hand, the interbank interest rate is decreasing, the goals of the central bank policymaker to control the interbank market are being realized.

Details of open market operations

The central bank published the details of its operational position in the latest monetary policy executive report. According to the Central Bank’s prediction of the liquidity situation in the interbank market, the operational position of the Central Bank this week was the repurchase agreement.

According to this report, in the 18th stage of the open market operation, which was held on the 10th of August, a total of 20 banks and non-bank credit institutions registered orders to receive funds from the Central Bank.

The noteworthy point is that after 4 weeks when the repo balance was frozen at 59,900 billion tomans, in the recent auction, the repo balance increased and reached 65,000 billion tomans.

This is while the repo rate, which reached over 21% in the auctions of July 26 and August 3, decreased again and reached the level of 20%.

If we ignore the increase of 5 thousand billion tomans in the repo balance in the last auction, the analysis of the repo balance trend since the beginning of 1401 shows that this value has had a downward slope.

Also, the analysis of the statistics of the central bank shows that in the 18 stages of the open market operations that have been carried out since the beginning of this year, the position of the central bank has been to inject liquidity through the repurchase agreement (repo) and in these 18 weeks, the reverse repo, which means collecting liquidity It is from the banking network by the central bank, it has not been done.

Of course, the general trend of this injection has been decreasing, so that in the first open market operation on April 15, a total of 94 thousand billion Tomans were injected through repo, and in the last stage on August 10, this amount reached 65 thousand billion Tomans. .

On the other hand, in these 18 stages, the reverse repo, which means collecting liquidity from the banking network by the central bank, has not been done. Examining this downward trend of central bank injection through repo shows several issues.

First, the banks are still suffering from a deficit of resources and to compensate this deficit, they have applied for credit through a repurchase agreement. The second issue is related to the reason for the reduction of this process.

This indicates that despite the shortage of resources, banks are thinking of ways other than indirect borrowing from the central bank.

In fact, the difference between repo and direct borrowing is that repo is the same as collateral-based borrowing from the central bank. Banks reduce their dependence on the central bank through other processes such as borrowing from other banks in the interbank market.

The mutual effect of interest rate and repo

The recent increase in the repo balance after 4 weeks can be seen as a reaction to the decrease in interest rates in the interbank market. In recent days, when the news of the control of the interbank interest rate was published, and after this rate experienced a decrease of about 0.2 percentage points, the effects of this issue are gradually appearing in different markets; Because the interbank interest rate, as one of the types of interest rates in the money market, directs the interest rates in other markets, and in fact, this rate is the price of banks’ reserves and when they have a deficit at the end of the short-term financial period, either daily or weekly. they become reserves, borrow from other banks in the interbank market or from the central bank.

On the other hand, the category of interbank interest rate reduction can be related to the increase in repo balance, because this monetary variable has increased from about 60 thousand billion tomans to 65 thousand billion tomans.

Therefore, the effect of the repo balance and the interbank interest rate is a mutual and two-way effect. The effect of this interest rate reduction on other markets will be opposite as shown in the last open market operation.

Repo outlook in the coming weeks

The increase in the amount of central bank injection in the form of repo shows that after the repo rate decreased and reached 20%, considering the fact that the interbank interest rate is above 20%, banks are more willing to borrow indirectly from the central bank to secure their resources. They have a redemption agreement.

In the previous weeks, the opposite of this happened, because the repo rate was higher than the interbank interest rate, and this difference in rates caused banks to turn to the interbank market for more resources.

If the repo rate remains lower than the interbank interest rate, it can be expected that the amount of indirect borrowing from the central bank in the form of a repurchase or repo agreement by banks will increase.

In this way, the demand for resources in the interbank market will also be adjusted, and we can expect the interbank interest rate to decrease again in the coming weeks. This kind of interbank interest rate will be determined without the direct intervention of the central bank and only based on the interaction of supply and demand.

Policymaker behavior analysis

The increase in the repo balance in the recent auction has been completely in line with the decrease in the interbank interest rate.

In fact, the monetary policy maker adjusts the operational operations of the monetary policy due to this decrease in interest in the interbank market; Because as soon as the interbank interest rate decreased and after 4 weeks the repo amount remained constant, this monetary variable increased by about 5 thousand billion tomans.

When the interbank interest rate decreases, the repo balance should increase, because banks turn to this market more to provide the resources they need, and this is exactly what the central bank’s monetary policy was trying to achieve in recent days; It means controlling the interbank market by reducing the repo rate and then increasing the repo amount.

It seems that the central bank is adjusting inflationary expectations and curbing inflation by controlling interbank interest and its interaction with open market operations.