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International Monetary Fund. Monetary and Capital Markets Department
This Technical Assistance report highlights that setting up a liquidity forecasting framework would go a long way in establishing a key building block allowing the Royal Monetary Authority of Bhutan (RMA) to fulfil its legal mandate to formulate and implement monetary policy in ways better aligned with current central bank practices. The structural liquidity surplus, mainly due to foreign reserves accumulation, has been broadly stable in the absence of RMA intervention. The paper discusses that the volatility of autonomous factors and the fragmentation of the money market justify ambitious steps by the RMA towards setting up a liquidity management framework. The mission identified several constraints and gaps that need to be addressed to support the effectiveness of a liquidity forecasting framework. The mission’s recommendations presented in the report aim at streamlining the processing of the Government’s financial transactions and cash balances. Looking ahead, monetary policy transmission would benefit from developing RMA’s liquidity forecasting and management capacity.
International Monetary Fund. Monetary and Capital Markets Department

Development of the Money Market A functional money market is necessary for an effective market-based implementation of monetary policy . The central bank should aim at addressing the aggregate liquidity situation, rather than individual banks’ needs. The money market is also the first stage of the transmission of the monetary policy. Therefore, the mission considers it essential that the RMA, in parallel to internal endeavors to set up a liquidity management framework, actively promote the development of a functional money market: Money market contact group. The

International Monetary Fund. Monetary and Capital Markets Department

data regarding aggregate liquidity position . Market participants do not have a clear view of the aggregate liquidity situation. Assessment 17. A well designed short-term liquidity forecast should be preferred to any market intelligence techniques as the main tool to manage open market operations . The central bank always has more information than the commercial banks. Therefore, it should be the one who decides the amount of money market interventions based on its own forecasts. Moreover, the use of the information provided by commercial banks in terms of

International Monetary Fund. Monetary and Capital Markets Department
This Technical Assistance Report discusses the findings and recommendations made by the IMF mission regarding monetary and foreign exchange operations in Uganda, Bank of Uganda (BOU) recapitalization, and Bank of Uganda Act revision. The presence of sizable precautionary and involuntary reserves and excessive short-end volatility has weakened the transmission mechanism in Uganda. The key challenge remains to enhance monetary and fiscal policy coordination and to ensure that institutional and operational arrangements are robust and conducive to efficient monetary operations framework. The BOU should raise the effectiveness of the monetary and foreign exchange operations framework. To foster further market development there is need to anchor short-term interest rates by using various fine-tuning instruments to ensure improved operational efficiency and strengthen transmission of policy signals across the curve.