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Published on November 30, 2007

The move will enhance the country's money-market development, as lenders will be able to seek additional benefits from the bonds they have as collateral for lending to other financial institutions in the repurchase market.

Special business tax, the only obstacle left for the private repo market, could possibly be slashed by the Revenue Department from 3 per cent to 0.01 per cent.

Suchada Kirakul, the central bank's assistant governor, said yesterday the closure would also contribute to monetary-policy transparency because the financial institutions would lend or borrow the money themselves without the central bank as an intermediary.

Moreover, the future expectations of liquidity in the banking system would be announced to the public to provide the market with information about liquidity. The Bank of Thailand now plays the role of a matchmaker for lenders and borrowers in the repo market, which means it has to carry all the risks from the transactions.

The transactions in the private repo market are subject to a standard agreement called the Global Master Repurchase Agreement. Like the current repo market, interest rates charged in the private repo market would be lower than those in the interbank market.

"We want them to do transactions themselves because it would reflect real demand and that the market is either full of liquidity or tightening. They have to bear the risks themselves after the Bank of Thailand has taken the risks for a long time," Suchada said.

The financial institutions, however, could still seek financial facilities by borrowing directly from the central bank as the last resort, at 0.5 per cent above or below the policy interest rate, she added.

So far, seven out of 48 institutions - mostly small banks - intend to move to the interbank market instead of the private repo market, because any transaction in the latter has a minimum requirement of Bt100 million.

Anoma Srisukkasem

 The Nation