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Published : 24 Mar 2025, 08:06 PM
Bangladesh Bank has decided to discontinue its 28-day repo facility for commercial banks, effective from Apr 10.
The central bank’s move is aimed at reducing dependency on liquidity support and encouraging banks to manage their liquidity independently.
On Monday, Bangladesh Bank's Debt Management Department issued a notification announcing the change, which said from Apr 10 onwards, only 7-day and 14-day repo auctions would take place.
Previously, commercial banks in liquidity distress could borrow funds from Bangladesh Bank for 7, 14, or 28 days.
The 28-day repo option will no longer be available.
Under the repo agreement, commercial banks borrow funds from Bangladesh Bank to meet short-term liquidity needs, with interest rates determined through repurchase agreements.
Meanwhile, under the reverse repo agreement, known as Standing Deposit Facility (SDF) since July, banks deposit surplus funds with the central bank or the latter can absorb excess liquidity from the market if required.
These methods help Bangladesh Bank maintain balance in the money supply through the purchase and sale of government securities.
Regarding the halt of the 28-day repo facility, Syed Mahbubur Rahman, managing director and CEO of Mutual Trust Bank Limited, told bdnews24.com: “The closure of the 28-day repo facility means commercial banks will receive less liquidity support than before. However, I believe this decision is right.
“After all, 7-day and 14-day repos are still available. Banks need to reduce their dependency on the central bank,” he said.
He added, "Banks must manage their liquidity themselves. The less dependence on the central bank, the better."
In February, there were indications that Bangladesh Bank would halt two types of repo facilities.
In the first phase, the 28-day repo was expected to be discontinued in March, followed by the 14-day repo in June.
After a meeting with deputy governors and bank treasurers, a decision was made to close the 28-day repo facility in mid-March.
Arif Hossain Khan, the spokesperson and executive director of Bangladesh Bank, said the 28-day repo would be halted around the second or third week of March due to the fasting month of Ramadan.
Currently, the 7-day, 14-day, and 28-day repos are available, and Bangladesh Bank reduced its repo operations from twice a week to once a week in 2024.
As of now, commercial banks can borrow funds from Bangladesh Bank only on Tuesdays, as opposed to both Mondays and Tuesdays in the past.
In explaining the reasoning behind halting the 28-day repo, a senior official at Bangladesh Bank told bdnews24.com: "We have decided to move towards a 7-day repo system instead of the 14-day and 28-day options."
"When banks need liquidity, they should borrow from the call money market. This would strengthen the call money market. However, our banks are not practicing this."
The official noted, "Instead of borrowing from inter-bank markets, banks are increasingly relying on the central bank for liquidity."
“If banks cannot borrow from the call money market or other sources, they will be forced to approach Bangladesh Bank," the official explained.
The official believes the 7-day repo will become the standard and sole facility for liquidity support.
"Bangladesh Bank's money market review has shown that banks were borrowing through the 14-day and 28-day repos and investing the borrowed funds in treasury bills and bonds. This practice should be stopped. Commercial banks cannot engage in such transactions with the central bank," he said.
