The Bangladesh Bank has announced that it will phase out its 14-day repurchase agreement facility from 3 May, marking another step in its effort to tighten liquidity management and deepen activity in the interbank money market.
Under revised guidelines issued by the central bank’s Debt Management Department, commercial lenders will henceforth be able to access liquidity support through a seven-day repo instrument only. An overnight repo window will remain available during the reserve maintenance period to help banks meet regulatory reserve requirements.
The decision follows an earlier withdrawal of the 28-day repo facility in April last year. With the discontinuation of the 14-day tenor, banks will face a narrower time frame in which to manage short-term funding gaps. Officials say the move is designed to encourage greater discipline in liquidity forecasting and reduce excessive reliance on central bank funding.
Revised Repo Framework
| Feature | Previous Arrangement | From 3 May |
|---|---|---|
| Available tenors | Overnight, 7-day, 14-day | Overnight (RMP), 7-day |
| 28-day repo | Discontinued April last year | Not available |
| Securities valuation | Market value | Market value less 5% haircut |
| Penalty on default | Repo rate applicable | Repo rate plus equivalent penalty |
The new guidelines introduce a five per cent haircut on the market value of securities pledged as collateral. In practical terms, banks will receive liquidity equivalent to 95 per cent of the assessed market value of eligible instruments.
Should a bank encounter difficulty repaying funds on maturity, it may apply for a seven-day rollover. However, failure to repay on time will trigger a penalty equivalent to the agreed repo rate for the entire borrowing period. With the prevailing repo rate standing at ten per cent, a defaulting institution would effectively incur a total charge of twenty per cent.
Central bank officials argue that the stricter regime will discourage habitual reliance on repo funding, which they believe contributes to excess liquidity and inflationary pressures. By nudging lenders towards the call money and interbank repo markets, policymakers hope to stimulate more active trading and price discovery among financial institutions.
Recent data illustrate the scale of dependence on central bank liquidity. In January, banks borrowed a combined Tk 828 billion through repo facilities of various tenors. Of this sum, Tk 632 billion—more than three-quarters—was drawn under the 14-day facility alone.
Dr Md Ezazul Islam, Director General of the Bangladesh Institute of Bank Management, described the reform as a prudent step towards modernising liquidity operations. He noted that central bank borrowing expands the monetary base, potentially fuelling inflation if overused.
By streamlining access and tightening conditions, the regulator aims to reinforce market discipline while fostering a more vibrant and self-sustaining money market environment.