The instruments of monetary operations include the following:
Uncollaterised direct borrowings through open tender
Uncollateralised direct borrowing remains the principal monetary instrument. The maturity of these borrowings ranges from overnight to a maximum of 6 months, depending on market conditions and the maturity profile of outstanding borrowings. In addition to the fixed tenders, the Bank conducts Range Maturity Auction (RMA) whereby financial institutions are able to choose the preferred maturity date for their ringgit placement with the Bank vis-à-vis a pre-determined range tenure set by the Bank.
Repo (repurchase agreement transaction) is where the Bank sells eligible securities, such as the Malaysian Government Securities (MGS) to banks, and at the same time and as part of the same operation, commits to repurchase the equivalent securities on a specified date at a specified price which reflects the repo rate. Repo is used to absorb liquidity from the banking system, for tenure ranging from overnight to 1 year. Apart from absorbing liquidity, repo transactions are also used for the purpose of lending specific MGS requested by financial institutions to enhance secondary market liquidity in the bond market.
Reverse repo, meanwhile, is where the Bank buys eligible securities from banks, and at the same time and as part of the same operation, commits to resell the equivalent securities on a specified date at a specified price which reflects the repo rate. The Bank uses reverse repo transactions to provide liquidity to the banking institutions, including lending operations under standing facilities.
Auction of Bank Negara Monetary Notes (BNMNs)
BNMNs are short-term securities issued by the Bank. While BNMNs are mainly issued at a discount to their face-value, the Bank can also issue fixed-rate coupon bearing or floating rate BNMNs. BNMNs are usually issued for a longer tenure, ranging from 3-months to 1 year. The frequent issuances and enlarged outstanding size of the BNMNs have helped to deepen the secondary market liquidity of the short-term bills market.
Auction of Bank Negara Interbank Bills (BNIBs)
In addition to BNMNs, BNIBs are also short-term securities issued by the Bank at a discount to their face-value. Contrary to BNMNs, BNIBs are only available and tradable between licensed banks and aim to enhance liquidity intermediation in the interbank money market. The issuances of BNIBs with tenures range up to 1-year allow licensed banks to better manage longer-tenure liquidity and meet the needs of licensed banks for liquid assets.
BNIBs are also issued in foreign currency for onshore foreign currency liquidity management by licensed banks.
Outright sales and purchases of Government securities
The Bank may purchase or sell eligible securities, namely securities issued by the Government or the Bank to adjust liquidity in the banking system.
Foreign currency (FX) swap
The Bank may conduct a foreign currency (FX) swap as another means of absorbing or adding liquidity. In a FX swap, the Bank either purchases or sells the ringgit against a foreign currency while simultaneously agrees to undertake the opposite transaction at a future date. The operation will be equivalent to lending (borrowing) in the interbank market by affecting a purchase (sale).