TRIPOLI (Reuters) - Libya's Central Bank on Tuesday launched repurchase agreements for the first time as part of reforming the country's banking system, a bank official said.

"The Central Bank reached accords today with the country's main banks to launch repurchase agreements. Such agreements did not exist in the banking system before and they are new. The repurchases rate are fixed at 4.25 percent for now," Ali Ramadane Chnebech, the bank's research department chief, said.

"The Central Bank would have a new tool to manage in an indirect way the liquidity of the banking system," he told Reuters by telephone from the Central Bank's headquarters in Tripoli, which would be "more efficient for the banking system."

The Central Bank started also on Tuesday an electronic auction trading system on 91-day treasury bills and hiked the rate for certificates of deposits to 2.25 percent from 1.75 percent.

"The RTGS (Real Time Gross Settlement) auction system is also new. It replaced the old system of papers. It allows rapid access to the market by banks and permits the central bank to mop up liquidity when the need arises," Chnebech added.

"The rate was increased also to help fight inflation which is emerging now," he said but he gave no more precise details.

Libya, with a population of 5 million and the biggest holder of oil reserves in Africa, is moving to modernize its banks.

But it faces an uphill task in a command economy where cash is king and firms struggle to get credit.

The archaic banking system is often cited as the main obstacle to speed up reforms of the Soviet-style economy which is handicapped by red tape, archaic banks, an overstaffed civil service and complex tax, customs and financial regulations that have limited foreign investment.

Executives complain that the banking system, nationalized in 1970, remains highly centralized. The government passed a law in 1993 that allowed the establishment of private sector banks but the sector remains dominated by state-owned institutions.

As a result, foreign banks have been slow to enter the north African oil producing country despite a 2005 law permitting them to open branches, largely because of what bankers call bureaucratic regulation and old-fashioned administrative procedures.