Central Bank wants to manage government bonds

The Central Bank of Cyprus wants to continue to manage and supervise the government bond auctions, with a senior official claiming that the management of the bond market is part of the monetary policy implemented by the Central Bank.

In remarks at the House Finance Committee meeting discussing the future management of government bonds, which the Finance Ministry is now seeking to control, Central Bank Senior Manager Kyriakos Zyngas told Deputies that the Central Bank should be allowed to continue to manage the government bond auctions, as it has successfully done so during the past decades.

The Central Bank insists that it should have the last say and the right to refuse to accept bids, at its discretion and without the need to provide a reasonable explanation as to why it did so.

The government wants to modernize the bond auctions by appointing primary dealers who will deal directly with the Finance Ministry and then subsequently sell the issue to secondary dealers.

The Chairman of the CSE also wants a piece of the action, claiming that a stock market without government bonds stands no chance of attracting serious institutional interest from abroad.

The Central Bank meanwhile insists that it is best suited to carry on managing the bond market for and on behalf of the state, which in the opinion of Zyngas forms part of the monetary policy implemented by the Central Bank.

Zyngas said that with local liquidity or excess funds in the system at CYP 840 mln, a huge sum by local standards, the government should not tap overseas markets for funds and instead should draw from the local market.

“Only the Central Bank is in a position to know the needs of the government but also implement such funding requirements according to the monetary policy in place. For example, in current liquid conditions and ahead of the approach of the “locking” period whereby the Cyprus pound rate will be linked with the euro, we need stable monetary conditions, which at the same time should maintain confidence in the currency and the economy in general,” said Zyngas.

Members of the HFC refused to be drawn into the arguments placed by the Central Bank and the Finance Ministry, referring the matter to the House plenum for a final positioning.