The Bangladesh Bank has decided to discontinue its 28-day and 14-day repo facilities—short-term borrowing mechanisms for banks from the central bank—to stimulate a more dynamic inter-bank call money market and reduce commercial banks' dependence on the regulator.
Going forward, only the 7-day repo facility will remain operational.
In a further move to ease liquidity management, the central bank has also scrapped additional charges previously levied on repo borrowings.
These decisions were communicated during a meeting with central bank policymakers and treasury heads from state-owned and private banks.
Senior banking officials at the meeting stated that the 28-day repo facility has been widely utilised.
However, the Bangladesh Bank explained that phasing out these facilities is aimed at strengthening the open market operations of banks and financial institutions within the interest rate corridor framework.
A repurchase agreement, or Repo, is a short-term borrowing tool, predominantly used for government securities.
Under this arrangement, banks sell securities to the central bank with an agreement to repurchase them at a slightly higher price, typically the following day.
A senior policymaker at the Bangladesh Bank clarified that while repo auctions are currently available for 7, 14, and 28 days, the 28-day facility will be discontinued between March and April, followed by the 14-day facility between June and July.
Consequently, only the 7-day repo will remain available in the coming months.
Previously, commercial banks accessed the Repo facility on a daily basis.
However, as part of the International Monetary Fund’s (IMF) $4.7 billion loan conditions, the central bank curtailed this practice from 1 July, limiting repo auctions to Mondays and Wednesdays.
From November, the frequency was further reduced to once a week, with the latest move narrowing access even further.
A policymaker at the central bank explained that the IMF’s conditions necessitate a reduction in repo instruments.
Despite these changes, the Standing Lending Facility (SLF) and Standing Deposit Facility (SDF) will continue to operate daily, ensuring unlimited borrowing capacity through the SLF.
Additionally, the central bank has removed the previously imposed surcharge of 10 to 30 basis points on repo transactions to lower borrowing costs for banks.
Banking representatives have proposed the introduction of an intra-day Repo facility to improve liquidity management.
The new measures underscore the Bangladesh Bank’s broader strategy to foster a more self-sustaining banking ecosystem while complying with IMF-mandated financial reforms.
