Bangladesh Bank to discontinue 14-day repo from July

Bangladesh Bank is set to discontinue the 14-day repo facility from July, limiting liquidity support for commercial banks to just the 7-day term.

Currently, auctions are held for both tenors, but from next month, the central bank will run only the 7-day repo auction.

The 28-day repo was already scrapped on Apr 10.

The 14-day facility was meant to be withdrawn this month but has now been deferred by a month, according to Bangladesh Bank spokesperson Arief Hossain Khan.

“The governor has issued a directive to discontinue the 14-day repo facility,” he told bdnews24.com on Monday.

Banks borrow from the central bank through repos when short on liquidity, with rates set under repurchase agreements.

Excess funds are placed with Bangladesh Bank through reverse repos--soon to be known as Standing Deposit Facility (SDF) from July--which also lets the central bank pull excess liquidity from the market.

These tools, used through buying and selling government securities, help Bangladesh Bank maintain monetary balance.

Repo auctions are currently held once a week, on Tuesdays.

The International Monetary Fund (IMF) has long pushed Bangladesh to phase out the 14 and 28-day repos to force stronger interbank liquidity management.

Commenting on the move, Pubali Bank Managing Director Mohammad Ali told bdnews24.com: “Bangladesh Bank wants to strengthen banks’ liquidity management. So, banks will borrow through the 7-day repo if the 14-day one ends--although it may require more frequent borrowing.”

He added, “This change won’t create major issues. It should improve how banks handle liquidity.”

A senior official at Bangladesh Bank said the move is aimed at enforcing discipline and encouraging market-based liquidity solutions.

“We are shifting to a structure based solely on 7-day repos. If banks need funds, they should borrow from the call money market.”

He added, “That strengthens interbank activity, but our banks aren’t using it enough.”

“Instead of borrowing from each other, they’re relying too much on the central bank. That’s not how it should work.

“The central bank should be the last resort.”

The official believes the 7-day repo should be the “standard and sole facility” going forward.

He also noted that some banks have been borrowing via 14 and 28-day repos and reinvesting the funds into treasury bills and bonds--essentially profiting off central bank money.

“That needs to stop. Banks can’t do business off central bank funds. That’s why this step has been taken.”