Seychelles Develops Secondary Market to Boost Trade

The Seychelles Banking Association (SBA) has been urged to play a crucial role in developing a secondary market, a key component in creating a “trade-friendly” environment for banks. The SBA should establish a code of conduct for the money and FX markets, promoting acceptable behavior between banks and stimulating interbank trading.

Establishing a Secondary Market

The Seychelles Securities Exchange (SSE) is set to be established, allowing for the trading of government securities and providing an opportunity for early cash-in. Additionally, if shares are listed on the SSE, this could invigorate the equity market.

Monetary Policy Framework Undergoing Transformation

The Central Bank of Seychelles (CBS) is transitioning from a reserve money targeting framework to an interest rate targeting framework as part of its program with the International Monetary Fund (IMF). The new framework will feature a Monetary Policy Consultation Committee with an inflation forecast at its core.

Liquidity Management and Money Market Under Review

The CBS operates a Minimum Reserve Requirement system that allows for reserve averaging to stimulate active liquidity management by commercial banks. The bank also intervenes frequently to absorb excess liquidity through Deposit Auction Arrangements (DAAs).

Reducing volatility: The CBS will reduce the frequency of its standard 7-day DAA from three times a week to two times a week on Wednesdays and Fridays.
Abolishing non-standard DAAs: The non-standard DAA has been abolished.

Standing Facilities Now Accessible Online

The standing facilities, which form a 600 basis point wide interest rate corridor, are now open without limits and accessible through an online portal. The collateral framework is also set to be made available on the CBS’ website.

Introducing Reverse Repos

==========================

The CBS plans to introduce reverse repos as a monetary policy tool, using T-bills currently on its balance sheet as underlying collateral. This could help mop up excess liquidity and stimulate collateralized interbank market trade.

Conclusion

These developments are expected to have a positive impact on the Seychelles’ financial markets, providing a boost to trade and economic growth.