Dhaka, Bangladesh (BBN) – The central bank of Bangladesh has introduced term repurchase agreement (repo) facility for the first time to ensure liquidity in the banking system.
All scheduled banks are allowed to avail liquidity from the central bank for durations ranging from seven days to maximum 28 days, according to a notification, issued by the Bangladesh Bank (BB), on Wednesday.
The central bank will conduct the repo and the term repo transactions through auctions, held on all working days for overnight, seven-day, 14-day and 28-day tenors.
Talking to the BBN, a BB senior official said the banks will have to mention tenor and interest rate of repo facility in their bids.
The interest rate on overnight repo has already been fixed at 6.0 per cent.
In case of term repo, the bids will be submitted offering higher rate than the overnight rate, he added.
The committee will take final decisions on interest rate and amount for each term repo auction, according to the notification.
For intervening holidays, the tenor of repo will be automatically extended by the number of holidays.
For example, in case of the overnight repos issued on Thursday, the tenor will be three days (Thursday, Friday and Saturday), the BB official explained.
Currently, the overnight repo and the overnight reverse repo are available for the banks to manage their liquidity properly.
If a bank needs fund, it can get the fund by using the repo window.
Similarly, if a bank has excess liquidity, it can submit that fund with the BB using the reverse repo window.
The central banker also said a number of countries, including India and Thailand, have already introduced the term repo facility to ensure liquidity in their banking system.
Senior bankers, however, welcomed the BB’s latest moves, saying that it will help ensure better liquidity management in the country’s banking system.
But the banks do not prefer overnight repo mainly due to higher interest rate than the inter-bank call money rate.
The call rate ranged between 0.50 per cent and 5.00 per cent on Tuesday, unchanged from the previous level.