Bangladesh Bank to introduce market-based pricing with new daily interest benchmarks

The Bangladesh Bank (BB) says it will launch two daily "reference rates" starting Wednesday to provide a clear indicator of market-based interest rates within the country’s financial sector.

The move, announced at a press conference on Monday, aims to offer a "price indicator" for bonds, floating-rate products, and various financial contracts.

The central bank will publish two distinct rates.

The Bangladesh Overnight Financing Rate (BOFR) is a risk-free rate based on the weighted average of the previous day’s interbank repo (secured) transactions, where loans are backed by 100 percent collateral.

Initially, it will cover daily and one-week tenures.

The Dhaka Overnight Money Market Rate (DOMMR) will reflect unsecured transactions in the interbank money market from the previous day.

It will begin with one-day tenures and later expand to one-week, one-month, and three-month periods.

Mohammad Shahriar Siddiqui, director of the Financial Stability Department of BB, clarified that these are not "forward-looking" or "final" rates.

"It tells you what the interest rate was based on the previous day's transactions. It serves as a guidance index for customers," he said.

Istequemal Hussain, director of the Debt Management Department, added that banks could determine their lending rates by adding or subtracting from these benchmarks.

The central bank, however, will strictly monitor the market to prevent "unusual" deviations or attempts to manipulate market-based rates.

The new system replaces the "DIBOR" (Dhaka Interbank Offered Rate), which has been published by the Bangladesh Foreign Exchange Dealers' Association (BAFEDA) since 2010.

Central bank officials noted that DIBOR lacked transparency and was not fully market-based because member banks often failed to provide regular, accurate data.

The new reference rates are expected to offer a more accurate reflection of reality, providing foreign investors with a transparent view of Bangladesh's financial market.

Following a pilot phase and consultations with banks since January, the central bank has shared the current experimental figures.

The BOFR stands at 10.20 percent for overnight transactions and 9.90 percent for one-week tenures.

The DOMMR is 10.25 percent for overnight, 10.10 percent for one week, 10.90 percent for one month, and 10.50 percent for three-month tenures.