Instruction No. 001-CR/07 of May 10, 2007 on Open-Market Operations

Instruction No. 001-CR/07 of May 10, 2007 on Open-Market Operations

The Governor of the Central Bank of Madagascar, Having regard to Law No. 94-004 of June 10, 1994 establishing the statutes of the Central Bank of Madagascar, Having regard to Decree No. 2007-027 of January 29, 2007 appointing the Governor of the Central Bank of Madagascar, DECIDES:

Section I: Preliminary Provisions Article 1: In order to complement its monetary policy instruments, the Central Bank has decided to conduct open-market operations consisting of purchases or sales of securities on the secondary market. The Central Bank may conduct such interventions on public securities, currently Treasury Bills and securities arising from the Central Bank's claims on the Treasury, and ultimately on all negotiable debt instruments.

Section II: PARTICIPANTS Article 2: Open-market operations are open to credit institutions referred to in Article 3 of Banking Law No. 95-030 of February 22, 1996.

Section III: MODE OF OPERATION Article 3: Two operational procedures may be used depending on the objective and the amount of operations:

• auction-based intervention;
• bilateral/negotiated intervention.

It is specified that the Central Bank usually uses auction-based intervention, but the choice of operational mode remains at its discretion.

Section IV: Auction-Based Intervention Article 4: Operations are subject to a call for bids. The announcement of the operation is made on the preceding day (T-1) and transmitted by fax to credit institutions.

Article 5: Upon announcing an operation, the Central Bank disseminates the following information:

• the nature of the operation (purchase or sale)
• the exhaustive list of securities offered for sale or to be purchased, along with their characteristics (type, reference, nominal amount, ...)
• the scheduled time for receiving responses.

Article 6: Responses from credit institutions are received by fax or sealed envelope during the announced time window at the Credit Department. These responses must include:

• the nominal amount of bids;
• the proposed rates (to two decimal places);
• the reference of the securities.

Article 7: After collating the terms from credit institutions, the Central Bank:

• accepts bids submitted at the stated rates, prioritizing higher rates for purchases up to the retained central bank money amount. The allocation of the marginal tranche is made pro rata based on bids.
• accepts requests at the proposed rates, prioritizing lower rates for sales up to the retained central bank money amount. The allocation of the marginal tranche is made pro rata based on requests.

Article 8: Upon announcing the results, the Central Bank indicates:

• the amount of operations;
• the range of accepted rates;
• the weighted average rate of the operation.

Section V: Negotiated/Bilateral Intervention Article 9: Operations are negotiated directly with credit institutions, under terms prevailing in the secondary market.

Article 10: Initially, the Central Bank communicates to credit institutions the nature of the operation (sale or purchase) by specifying the following elements:

• the deadline date and time for receiving responses
• the settlement date
• the exhaustive list of securities offered for sale or to be purchased, along with their characteristics (type, reference, nominal amount, ...).

Article 11: The terms from credit institutions are received by fax before the deadline set by the Credit Department. The following indications must be included:

• the minimum and maximum transaction amounts;
• the rates (to two decimal places)
• the reference of the securities.

Article 12: Based on the terms communicated by credit institutions and according to the central bank money needs or surpluses estimated by its departments, the Central Bank selects suitable terms and may initiate negotiations with the concerned credit institutions.

Article 13: Upon announcing the results, the Central Bank indicates:

• the amount of operations;
• the range of accepted rates;
• the weighted average rate of the operation.

Section VI: COMMON PROVISIONS § 1 - Decision of the Central Bank Article 14: The Central Bank's decision is communicated to credit institutions on the same day (T).

§ 2 - INTEREST CALCULATION Article 15: Interest will be paid at maturity for securities with maturities of 6 and 12 months, and annually for maturities exceeding one year. In the event of securities repurchase by the Central Bank, paid interest will be determined based on the buyback rate agreed upon by both parties.

§ 3 - ACCOUNTING Article 16: The amount transferred (in case of sale) or repurchased (in case of purchase) is posted on the same day to the debit or credit of the credit institution's account held at the Central Bank. Simultaneously, the securities account of the credit institution managed at the Central Bank is credited or debited with the operation amount.

This Instruction enters into force as of the date of its signature. Antananarivo, May 10, 2007 The Governor, Frédéric RASAMOELY.