CBB Auction
Open Market Operations or Central Bank Bill (CBB) is an instrument that is used to implement the monetary policy of the Bank of Mongolia.
In order to manage fluctuations in the short-term rate and liquidity of the interbank market, the BoM trades with commercial banks Central Bank Bills (CBB) with different yields and maturities:
- Instrument to recall liquidity from the interbank market: issuance of CBB with maturities up to one year.
- Instrument to inject liquidity into the interbank market: repo sale of eligible securities.
According to the given legal rights, the Bank of Mongolia conducts CBB trades regularly to ensure the efficient implementation of the monetary policy. The short term CBB are traded at a rate equal to the policy rate, which also serves as a reference for interbank rates. Trade of the central bank bills can take one of the following five forms:
- Fixed rate tender with full allotment;
- Fixed rate tender with pre-announced volume;
- Variable rate tender within interval with pre-announced volume;
- Variable rate tender with upper limit on yield, and pre-announced volume;
- Variable rate tender with pre-announced volume;
Based on the Regulation on the CBB The Bank of Mongolia can trade central bank bills with maturity up to one year. Hence The Bank of Mongolia ensures the implementation of the monetary policy by influencing the short-term rate. The Bank of Mongolia started trading central bank bills since 1993 and depending on the circumstances of the economy the maturity varied as 1-week, 4-weeks, 12-weeks, and 28-weeks. The maturity, frequency and the type of auction is selected based on the experiences of foreign countries, Mongolia’s economic conditions, the activity in the interbank market and in relation to the other tools of the monetary policy.
Table 1. The types and maturity of CBB auction
| Types of CBB trading | 7-day | 28-day | 84-day | 196-day | Others* | |
|---|---|---|---|---|---|---|
| Fixed rate tender | 1. Full allotment | X | ||||
| 2. Pre-announced volume | ||||||
| Variable rate tender | 3. Upper limit on yield and pre-announced volume | X | ||||
| 4. Pre-announced volume within a certain interval | ||||||
| 5. Pre-announced volume | ||||||
*According to the Regulation on the Central Bank Bill, The Bank of Mongolia can trade CBB with any maturity date.
4-week maturity Central Bank Bills
The Bank of Mongolia has started auctioning 4-week CBBs on April 2nd, 2018 with the purpose of promoting activity in the interbank market, develop the money market and to reduce the Bank of Mongolia’s intervention in the money market. CBB with maturity of 4 weeks are traded on Mondays at fixed rate (Policy rate) with full allotment. This short-term CBB auction allows the commercial banks to allocate their liquidity efficiently and prevents deficit and surpluses of liquidity in the interbank market.
28-week CBB
In Mongolia’s case, the liquidity surplus of the interbank market tends to be permanent or structural depending on the economic situation. Mongolia’s local currency government bond issuance was temporarily halted by the Ministry of Finance in October 2017, thus according to the related regulations, the Bank of Mongolia started auctioning relatively long-term CBB with maturity of 28 weeks in November of 2018.
Auctioning this type of CBB has following benefits:
- Created security in the market that aims at withdrawing the surplus in the interbank market that tends to be permanent or structural,
- CBB with maturity of 28 weeks will not interfere with the financial market development and the government bill market, since majority of government bills had maturity of 6 months or higher,
- Closely related with other tools of the monetary policy
- Long-term central bank bill frequency is linked with reserve requirement renewal dates; hence it assist efficient liquidity management for commercial banks,
- The type of trade does not let the central bank to interfere with market interest rates and interest rate expectations,
- It constructs the beginning of the money market yield curve.
CBB with maturity of 28 weeks are traded at variable rate tender with pre-announced volume based on the liquidity forecasts of The Bank of Mongolia.
| Total Outstanding CBBs, in million MNT | |||||
|---|---|---|---|---|---|
| Issue Date | Total Outstanding CBBs | 1 week | 4 weeks | 12 weeks | 28 weeks |
| ${ moment(item.RATE_DATE).format("YYYY-MM-DD") } | ${item.TOTAL_OUTSTANDING} | ${item.OUTSTANDING1} | ${item.OUTSTANDING4} | ${item.OUTSTANDING12} | ${item.OUTSTANDING28} |
| 1 week, in million MNT | |||||
|---|---|---|---|---|---|
| Issue Date | Weighted Average Rate | Trade Amount | Outstanding CBBs | Total Outstanding CBBs | |
| ${ moment(item.RATE_DATE).format("YYYY-MM-DD") } | ${item.WEIGHTED_AVERAGE_RATE1} | ${item.TRADE_AMOUNT1} | ${item.OUTSTANDING1} | ${item.TOTAL_OUTSTANDING} | |
| 4 weeks, in million MNT | |||||
|---|---|---|---|---|---|
| Issue Date | Weighted Average Rate | Trade Amount | Outstanding CBBs | Total Outstanding CBBs | |
| ${ moment(item.RATE_DATE).format("YYYY-MM-DD") } | ${item.WEIGHTED_AVERAGE_RATE4} | ${item.TRADE_AMOUNT4} | ${item.OUTSTANDING4} | ${item.TOTAL_OUTSTANDING} | |
| 12 weeks, in million MNT | |||||
|---|---|---|---|---|---|
| Issue Date | Weighted Average Rate | Trade Amount | Outstanding CBBs | Total Outstanding CBBs | |
| ${ moment(item.RATE_DATE).format("YYYY-MM-DD") } | ${item.WEIGHTED_AVERAGE_RATE12} | ${item.TRADE_AMOUNT12} | ${item.OUTSTANDING12} | ${item.TOTAL_OUTSTANDING} | |
