Markets

Open Market Operations

Open Market Operations involve the purchase or sale of securities, such as Treasury Bills or Government bonds, by the Central Bank in order to influence the money supply. When the Bank sells (purchases) these securities to (from) a bank or an individual, money is withdrawn from (added to) the flow of money in the economy.

The Central Bank is the current Official Registrar and Transfer Agent of securities for the Government, the Bahamas Mortgage Corporation, the Bridge Authority and the Clifton Heritage Authority. The Bank maintains both a primary and secondary market for the Government's local currency securities, which at present includes Treasury Bills and Registered Stock. Treasury Bills, sold through a tender for periods of 91 or 182 days in increments of B$100, provide short-term financing to the Government. Registered Stocks, which are issued under The Bahamas Registered Stock Act, 1973, are long-term securities with maturities of up to 25 years. With a minimum investment of B$100, they are issued at par, in multiples of 100, and carry varying interest rates, usually tied to the Bahamian prime lending rate.

The amount issued in any fiscal year is based on budgeted financing provisions authorized by resolution of the House of Assembly. The ceiling for Treasury bills outstanding is limited by law to 25% of the Government's average ordinary revenue in the three preceding years.

In the absence of an active secondary market in Treasury bills and Registered Stock, the Central Bank provides liquidity to the market by standing ready to discount these securities before maturity, although there is no legal requirement to do so. Treasury bills are rediscounted at a rate of 0.5 percentage points above the average discount rate, and sold, after the tender, at a rate of 0.1 percentage points below the average discount rate. The Bank may also extend loans against the collateral of Government paper, with the interest rate on these loans rising in line with the duration of the loan.

Primary and secondary operations have also been accommodated for the Bridge Authority's bonds. In the case of the Bahamas Mortgage Corporation, only primary activities have been undertaken although by virtue of the registrar functions, the Bank is also able to track secondary trading. Open market operations are facilitated through the Bank's Banking Department.

Markets