BAHRAIN INTRODUCES NEW MONEY MARKET REGIME
Bahrain is introducing a new domestic
money market regime to provide dinar liquidity aid centred on
the island's newly launched treasury bill programme.
    The Bahrain Monetary Agency has issued a circular to all
commercial banks outlining a new policy from April 1 which
gives liquidity aid through sale and repurchase agreements in
treasury bills, or through discounting them.
    The circular, released officially to Reuters, said current
arrangements for providing liquidity aid will no longer be
valid except "in quite exceptional circumstances."
    Under the current system, the agency provides the island's
20 commercial banks with dinar liquidity by means of short-term
swaps against U.S. Dollars and, less frequently, by short-term
loans secured against government development bonds.
    "The agency considers that it is now appropriate to replace
these operations with short-term assistance based on Government
of Bahrain treasury bills," the circular to banks states.
    The agency said it will repurchase treasury bills with a
simultaneous agreement to resell them to the same bank at a
higher price which will reflect an interest charge.
    The agency said it envisages the repurchase agreements will
normally be for a period of seven days.
    Bahrain launched a weekly tender for two mln dinars of
91-day treasury bills in mid-December last year and has since
raised a total of 26 mln dinars through the programme.
    Bahrain's commercial banks are currently liquid and have
been making little use of the traditional dollar swaps offered
by the agency. But banking sources said the new regime from
April 1 will mean banks cannot afford not to hold treasury
bills in case they need funds from the central bank.
    Banking sources said more than half of the 20 banks hold
treasury bills, although the need by others to take up paper
could increase demand at weekly tenders and push down allotted
yields slightly.
    Last week's yield was six pct, although the programme had
started at the end of last year with rates as low as 5.60 pct.
    Banking sources said the cost of liquidity through
repurchase accords will not differ much from that on dollar
swaps. But a bank using dollars to obtain liquidity would
foresake interest on the U.S. Currency while the underlying
treasury bill investment is unaffected in a repurchase accord.
 REUTER
