Dhaka, Bangladesh (BBN)- Banks should be invited to provide indicative rates for introducing Dhaka Inter-bank Offered Rate (DIBOR) as the country’s benchmark interest rate in financial market.

This has been recommended by a committee of the Bangladesh Foreign Exchange Dealers’ Association (BAFEDA), which will be discussed at BAFEDA’s executive committee meeting scheduled for Sunday, a BAFEDA member said.

All member banks of BAFEDA should be invited to offer indicative rates for over night, one-week, two-week, one month, three-month, six-month and one-year on Reuters screen, according to the recommendations.

On September 7 last, a four-member sub-committee was formed to formulate the code of conduct for operating the DIBOR properly.

“We’ve submitted our report to BAFEDA for taking necessary measures to introduce such benchmark interest rate like London Inter-bank Offered Rate (LIBOR),” the BAFEDA member told BBN in the capital, Dhaka.

He also said the business houses, particularly corporate entities, will take benefit for receiving loans at comparative lower interest rates after introduction of DIBOR.

The DIBOR is a rate at which banks are prepared to lend to each other for specific maturity period within the Dhaka market.

It is also fixed daily for reference purposes and is a key interest rate level used for setting rates for loans and floating rate notes and for calculating cash settlements of certain interest rate derivative instruments.

The BAFEDA member also said the country’s secondary securities market will be strengthened after introduction of the DIBOR.

Earlier, a focus group on secondary market and settlement system of bond market recommended introduction of DIBOR to bring dynamism in the market.

The group also recommended constituting a term structure of the yield curve to help the central bank launch it in the market as soon as possible.

In South Asia, India, Pakistan and Sri Lanka have already introduced their benchmark interest rates to operate financial market smoothly.

The National Stock Exchange of India Limited (NSE) had developed and launched the NSE Mumbai Inter-bank Bid Rate (MIBID) and NSE Mumbai Inter-bank offered Rate (MIBOR) for overnight money market on June 15, 1998.

The MIBID or MIBOR rate is used as benchmark rate for majority of deals struck for Interest Rate Swap, Forward Rate Agreements, Floating Rate Debenture and Term Deposits.

Karachi Inter-bank Offered Rate (KIBOR), which has been introduced since 2001, is now being proposed to be used for commercial asset benchmarking.

BBN/SI/SSR/AD-30November08-6:13 PM (BST)