BB launches term repo for banking system liquidity

Siddique Islam | Published: June 07, 2018 10:08:17 | Updated: June 08, 2018 09:56:04

FE file photo

The Bangladesh Bank (BB) introduced a term repurchase agreement (repo) facility for the first time on Wednesday to ensure liquidity in the banking system.

Under the term repo, the banks are allowed to avail liquidity from the central bank for durations ranging from seven days to a maximum of 28 days.

The central bank will conduct the repo and the term repo transactions through auctions, held on all working days for overnight, seven-day, 14-day and 28-day tenors.

The banks will have to mention tenor and interest rate of repo facility in their bids, a BB official said.

The interest rate on overnight repo has already been fixed at 6.0 per cent.

In case of term repo, the bids will be submitted offering higher rate than the overnight one, according to a notification, issued by the BB on the day.

The committee will take final decisions on interest rate and amount for each term repo auction, it added.

For intervening holidays, the tenor of repo will be automatically extended by the number of holidays.

For example, in case of the overnight repos issued on Thursday, the tenor will be three days (Thursday, Friday and Saturday), the BB official explained.

Currently, the overnight repo and the overnight reverse repo are available for the banks to manage their liquidity properly.

If a bank needs fund, it can get the fund by using the repo window.

Similarly, if a bank has excess liquidity, it can submit that fund with the BB using the reverse repo window.

"A number of countries, including India and Thailand, have already introduced the term repo facility to ensure liquidity in their banking system," the BB official told the FE.

In India, the term repo has different durations. The usual tenors are seven-day, 14-day and 28-day.

Syed Mahbubur Rahman, chairman of the Association of Bankers, Bangladesh (ABB), welcomed the BB's latest moves in this regard.

Mr. Rahman, also managing director and chief executive officer of the Dhaka Bank Limited, said it will help ensure better liquidity management in the country's banking system.

The banks having excess security can easily avail liquidity from the central bank through term repo, he added.

Talking to the FE, a senior treasury official of a private commercial bank said term repo will be an additional window for the banks to receive cash from the central bank to meet their liquidity demand.

He also said the banks do not prefer overnight repo mainly due to higher interest rate than the inter-bank call money rate.

The call rate ranged between 0.50 per cent and 5.00 per cent on Tuesday, unchanged from the previous level.



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