Bangladesh is preparing to implement a major structural reform of its money market as the central bank moves away from bank-submitted reference rates towards a fully transaction-based benchmark system designed to more accurately reflect real financial conditions in the interbank market.
The Bangladesh Bank has confirmed that the new framework—modelled on internationally recognised systems such as the Secured Overnight Financing Rate (SOFR), widely used in advanced financial markets—will take effect from 15 April. Under the revised mechanism, benchmark interest rates will no longer be derived from indicative quotations supplied by commercial banks. Instead, they will be calculated strictly on the basis of verified interbank lending transactions.
The announcement was made on Monday at a briefing organised by the Debt Management Department at Bangladesh Bank headquarters, marking one of the most significant upgrades to the country’s interest rate infrastructure in recent years.
Moving Away from the DIBOR System
Officials highlighted that the existing Dhaka Interbank Offered Rate (DIBOR) framework had long been dependent on self-reported interest rate submissions from banks. While this system provided a reference point for money market pricing, it increasingly came under scrutiny for failing to reflect actual liquidity conditions.
In particular, the reliance on voluntary reporting meant that data gaps and inconsistencies occasionally emerged, especially when certain institutions failed to submit regular updates. This, in turn, created potential distortions in the benchmark rate and reduced its effectiveness as a true indicator of market funding costs.
The new transaction-based approach is designed to address these weaknesses by ensuring that only executed deals between banks are used in calculating reference rates. Central bank officials emphasised that this will significantly improve both transparency and credibility in the financial system.
Introduction of a Dual-Benchmark Framework
Under the restructured system, Bangladesh Bank will publish two separate reference rates covering both secured and unsecured segments of the money market. This dual structure is intended to provide a more complete picture of liquidity conditions and credit risk across the banking sector.
| Benchmark Type | Official Name | Basis of Calculation | Market Segment |
|---|---|---|---|
| Secured Rate | Bangladesh Overnight Financing Rate (BOFR) | Collateral-backed interbank transactions | Secured money market |
| Unsecured Rate | Dhaka Overnight Money Market Rate | Unsecured interbank call money transactions | Unsecured money market |
By distinguishing between secured and unsecured lending, policymakers aim to better capture variations in risk perception, collateral usage, and short-term funding pressures within the banking system.
Broader Maturity Structure and Data Methodology
The Bangladesh Bank has also expanded the scope of the benchmark system to include multiple maturities, allowing market participants to track short-term interest rate movements more comprehensively.
For the secured BOFR, both overnight and one-week rates will be published. In contrast, the unsecured call money benchmark will cover a wider range of tenors, including overnight, one-week, one-month, and three-month maturities. This extended structure is expected to provide a more detailed short-term yield curve, improving pricing signals for financial institutions.
To ensure robustness, the calculation methodology will incorporate statistical filtering techniques designed to eliminate the impact of abnormal or outlier transactions that could distort the benchmark. Where daily trading activity is insufficient, the central bank may also use data from the previous business day to maintain continuity and stability in published rates.
Officials noted that this approach is consistent with international best practices used in benchmark reforms globally, where reliability and consistency are prioritised alongside transparency.
Strengthening Price Discovery and Financial Stability
The central bank expects the new system to significantly enhance price discovery across Bangladesh’s financial markets. By grounding benchmarks in actual transaction data, the system is intended to provide a more accurate reflection of true borrowing costs between banks.
This improvement is expected to have a wide-ranging impact on the broader financial ecosystem. Loan pricing, bond valuation, and floating-rate financial instruments will all benefit from a more credible and transparent reference rate, reducing uncertainty for both lenders and borrowers.
In addition, policymakers believe the reform will support the development of more sophisticated financial products, including derivative instruments and structured financing solutions, which require reliable benchmark rates as a foundation.
From a macroeconomic perspective, the introduction of a transaction-based benchmark is also expected to strengthen monetary policy transmission, allowing changes in policy rates to be more effectively reflected in market lending and deposit rates.
Testing Phase and Implementation Plan
According to Bangladesh Bank, the new benchmark system has been undergoing parallel testing since March to ensure stability and accuracy before full implementation. From 15 April onwards, official rates will be published daily on the central bank’s website each morning, making them accessible to financial institutions, investors, analysts, and the general public.
Authorities also confirmed that the system will not remain static. Instead, it will undergo continuous monitoring and periodic refinement to ensure it remains responsive to evolving market conditions and structural changes in the financial sector.
Towards a Modern Financial Infrastructure
The transition represents a significant milestone in Bangladesh’s ongoing financial sector modernisation agenda. By replacing perception-based benchmarks with transaction-driven data, the central bank is seeking to align domestic financial practices with globally accepted standards.
If successfully implemented, the reform is expected to improve market discipline, enhance financial stability, and deepen the country’s money market by making it more transparent and efficient.
Ultimately, the shift signals Bangladesh’s intention to integrate more closely with international financial systems, laying the groundwork for a more resilient, credible, and globally competitive monetary framework.