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Repo transactions decline in Azerbaijan

14 October 2008 14:09 (UTC +04:00)

Baku. Vahab Rzayev â€“ APA-Economics. The amount of repo transactions has significantly dropped in Azerbaijan.
Repo transactions between the central bank and commercial banks reached AZN 63.26 million as at September 1, a ten-fold decline from a year earlier.
In repurchase agreements, or repos, central banks typically sell and buy debt securities for a set period, regulating the amount of money available in the banking system.
In this deal, the party that sells securities to another party in return for cash agrees to repurchase equivalent securities at an agreed price and on an agreed future date.
It thus represents an important tool in monetary management in order to regulate liquidity.
To sum up, the central bank resorts to reverse repos when liquidity declines and to repos when liquidity is up.
However, the real picture shows that liquidity has declined in banks and banks rush for short-term notes issued by the central bank.
It is clear that notes are more profitable than repos and the decline in repo turnover shows lack of available funds in banks.
Meanwhile, refinancing has hit a historical high in the country, exceeding repo transactions.
Refinancing transactions are carried out as part of the regulation of liquidity in banking system.
Besides, interbank credit marker has become more active recently, proving that some banks are faced with the problem of liquidity.