Central bank repo auction is one of the open market instruments which provides reserves to the banking system by purchasing the securities owned by the bank from the Bank of Mongolia with the condition of resale at a pre-agreed price at the end of the term.
According to the "Regulations of Central Bank Repo Trading", the Central Bank can announce repo trading for up to one week (short term) or longer term (2-3 years).
Short term repo auction
/Currently, repo auction with maturity of up to a week is not organized since 2015/
Based on the reserve forecasting, the Central Bank announces repo trading when it’s necessary to supply reserves to reduce short-term reserve fluctuations and to manage short-term interest rates in interbank market. However, taking into account the excess reserves of Mongolia's interbank market structure, there is no need to use the tool at the moment.
According to the "Regulations of Central Bank Repo Trading, auctions can be issued with a maturity of up to 7 days and are organized in the form of a fixed interest rate with no limits or lower interest rates with limited rates and competitive rates.
The fixed rates or lower interest rates are as follows:
Repo Auction Rate = Policy Rate + 0.5 percentage points
Central bank repo auctions can be issued through a list of securities listed on the collateral list issued by the Risk Management Unit (RMU) of the Bank of Mongolia.
Long term repo auction
Repo auction with a term of 2-3 years has been organized since November 2020 to diversify export earnings and increase production and employment to support balanced national economic development which is one of the main goals of the Bank of Mongolia. According to article 2.5 of the Central Bank's repo auction regulations, the term, amount and additional terms of long-term repo auction are approved by the Governor of the Bank of Mongolia based on the resolution of the Monetary Policy Committee.