Iran central bank launches first repo operation with $30 mln injection
The Central Bank of Iran (CBI) has provided nearly $30 million to a commercial bank as part of a first repurchase agreement (repo) seen in the country’s banking system.
The CBI said in a Monday statement that the overnight repo operation involved securities worth 8.9 trillion rials issued by the official CBI dealer and sold to an unidentified bank at an interest rate of 22 percent.
“For the first time and with the aim of financing the short-time or emergency cash flow needed by the banks and non-bank credit institutions, the CBI agreed to a borrowing request from a bank under the repo agreement mechanism,” said the statement.
It said the lending was in line with government policies to expand the open market operations (OMO) to regulate the interest rate in the interbanking system through normal market mechanisms.
Iran introduced OMO policies in January in a bid to have better control over cash flow between major banks and thereby control the rate of inflation in the country.
The CBI announced in late March that it had set up rules and regulations governing repo and reverse repo agreements.
Officials said at the time that repo operations would help banks access emergency cash they need while it would boost trade of government-issued bonds instead of collaterals that are normally used by the banks for borrowings from the CBI.
Under a normal repo agreement, the seller of the securities agree to buy them back from the investor at a slightly higher price normally one day after they are sold.