Written by The Banking Post
Bangladesh Bank will phase out its 14-day repo facility from May 3, narrowing short-term liquidity support for commercial banks in a bid to strengthen fund management and streamline the money market.
Under new open-market operation guidelines issued by the central bank’s Debt Management Department, banks will be able to access liquidity through seven-day repo only. An overnight repo facility will remain available for reserve maintenance purposes. A 5% haircut on the market value of securities will also apply.
Officials say the move is intended to push banks toward better liquidity planning and greater reliance on the call money and interbank repo markets.
If a bank fails to repay repo funds on maturity, it may seek a seven-day rollover. In case of default, the penalty will equal the agreed repo rate—effectively doubling the cost to 20%, including a 10% penalty over the standard 10% repo rate.
Data show banks borrowed Tk 828 billion through repo facilities in January, with Tk 632 billion coming from the 14-day window.
Director General of the Bangladesh Institute of Bank Management Dr Md Ezazul Islam said the decision reflects efforts to modernise liquidity management. “Borrowing from the central bank leads to money creation, which adds inflationary pressure,” he said, adding that the move could make the money market more active without expanding liquidity.
