Bangladesh Bank to end 28-day repo in March, 14-day in June

A senior central bank official says banks should stop using repo funds for treasury bills and bond investments

Bangladesh Bank will end the facility for commercial banks to borrow money through two types of repos, a move that the International Monetary Fund, or IMF, has been urging for some time.

In the first phase, the 28-day repo facility will be discontinued within the third week of March, with the 14-day repo set to end by June.

The decision was made at a meeting between Bangladesh Bank’s deputy governor and the treasury heads of commercial banks on Monday.

Bangladesh Bank spokesperson Arif Hossain Khan told bdnews24.com that the 28-day repo would be stopped in the second or third week of March due to Ramadan.

According to several treasury heads present at the meeting, both the 28-day and 14-day repo facilities will be phased out.

Currently, repos are available for 7, 14, and 28 days.

In 2024, Bangladesh Bank changed the repo system from two days a week to one.

Commercial banks can now borrow money from the central bank on Tuesdays, whereas they previously could also borrow on Mondays.

When commercial banks face liquidity issues, they borrow money from Bangladesh Bank, a process known as repo.

The interest rate is determined through a repo or repurchase agreement.

With reverse repo, also known as Standing Deposit Facility, or SDF, since July, banks deposit surplus funds with the central bank or, if needed, Bangladesh Bank can withdraw liquidity from the market.

Through these two systems, the central bank manages the supply of money in the market by buying and selling government securities.

A treasury head from a private bank told bdnews24.com that the 28-day repo would end in the second or third week of March, followed by the discontinuation of the 14-day repo by June.

Bangladesh Bank Spokesperson Arif said, “A meeting with banks on monetary policy took place [on Monday].

“The IMF has long recommended phasing out repo facilities. However, Bangladesh Bank takes decisions based on a careful assessment of all factors.”

He added, “Banks need more liquidity during Ramadan due to higher transaction volumes, so the 28-day repo will not be stopped immediately but in mid-Ramadan, likely in the second or third week of March.”

A senior Bangladesh Bank official told bdnews24.com, “We are moving towards a 7-day repo system instead of the 14- and 28-day repo facilities.

“When banks need liquidity, they will borrow from the call money market. This will strengthen the call money market. However, banks in our country are not practising this."

He said, "Banks in our country are practising the opposite. They are borrowing more from the central bank than from the interbank market.

"When banks are unable to borrow from the call money market or other sources, they will ultimately turn to Bangladesh Bank for assistance."

"The 7-day repo will become the standard and only method.”

The official said, "Bangladesh Bank has reviewed the money market and found that banks have been borrowing money through the 14- and 28-day repos and then investing it in treasury bills and bonds.

“This practice should be stopped, as commercial banks cannot do business with the central bank in this manner. Hence, this decision has been made," he concluded.