28-day repo facility for banks ending on 10 April

The central bank has decided to discontinue its 28-day repurchase agreement (repo) facility for commercial banks from 10 April.

The central bank's Date Management Department issued a circular to this end today (24 March), which will mean that commercial banks can no longer borrow money from Bangladesh for a 28-day period.

Once the facility is closed, the banks will be allowed to take loans from the Bangladesh Bank for periods of seven days and 14 days.

Speaking to The Business Standard on condition of anonymity on the matter, a policy-making official of the central bank said, "We have to accept some conditions to get a loan from the IMF. One of these conditions was to reduce the repo tools."

"We have seen that many banks are borrowing money from the central bank instead of borrowing money from the call money market. Due to this, the banks are not developing their own capacity due to over-reliance on the central bank," the official explained.

"At the same time, we are seeing that many banks are borrowing money from the central bank at low interest rates through the 14- and 28-days repo and earning extra income by investing in government treasury bills and bonds at high interest rates. We want to stop this opportunity too," the official further said.

"For these reasons, we want to stop two repo periods other than the 7-day repo. As the first step of this decision, the 28-day repo has been stopped. This step has been taken to make the open market operations conducted for banks and financial institutions more effective according to the interest rate corridor," added the central bank officials.
Previously, commercial banks used to have the opportunity to borrow repo every day.

But Bangladesh Bank stopped this daily facility to comply with a condition of the International Monetary Fund (IMF) under its $4.7 billion loan programme.

On 1 July, the central bank announced that from now on, banks will be given money through the repo facility on Mondays and Wednesdays of every week, putting an end to holding auctions every day.

Subsequently, from November, the opportunity for commercial banks and financial institutions to borrow money through repo for short periods was further reduced to one day a week.
Currently, banks can borrow through repo on Tuesdays of every week.

Commenting on the proposal of banks to introduce Intra-day Repo to the central bank, the managing director of a private bank, on condition of anonymity, said, "Now, if we take a repo for any term, it is deducted from our account on the morning of the maturity date. On the other hand, the money from the new repo is credited to our account in the afternoon. As a result, we face problems in managing liquidity throughout the day."

"For this reason, we have requested the central bank to introduce Intra-day Repo. So that the liquidity management of the banks is better. However, the central bank has not given us any comment on this matter so far," added the banker.