Bangladesh Bank Scraps Fourteen-Day Repo Window

Bangladesh Bank has announced the withdrawal of its fourteen-day repurchase agreement facility in a move designed to tighten liquidity management across the banking sector. The decision will take effect on 3 May, compelling commercial banks to rely solely on shorter-term funding instruments for routine liquidity support.

Under the revised framework, banks will be permitted to access only the seven-day repo facility for short-term liquidity needs. The overnight repo window, however, will remain available during reserve maintenance periods to assist banks in meeting their statutory cash reserve requirements. The central bank’s Credit Management Department issued the amended directive, signalling a continuation of its gradual tightening approach. Notably, the twenty-eight-day repo facility had already been discontinued in April last year.

Revised Repo Structure

The updated directive introduces a five per cent valuation haircut on government securities pledged as collateral. In practical terms, securities with a market value of 100 monetary units will now yield a maximum of 95 units in liquidity. Policymakers view this adjustment as a prudential safeguard intended to mitigate financial risk and shield the central bank from potential market volatility.

Banks encountering repayment difficulties at maturity may apply for a one-time seven-day rollover. Failure to settle obligations within the stipulated timeframe will attract a penalty equivalent to the prevailing repo rate. With the current repo rate standing at 10 per cent, a default would effectively double borrowing costs to 20 per cent, substantially increasing the financial burden on non-compliant institutions.

Recent data illustrate the significance of the now-abolished facility. In January alone, banks borrowed a combined 828 billion monetary units through various repo tenors. Of this amount, 632 billion — more than three-quarters — originated from the fourteen-day window. The figures underscore the extent to which banks had come to depend on this intermediate-term liquidity support.

Economists suggest that prolonged reliance on central bank funding can inflate money supply and intensify inflationary pressures over time. By curtailing longer-duration repo access, the central bank aims to encourage greater participation in market-based funding channels, particularly the interbank call money market. Strengthening liquidity forecasting discipline and reducing systemic dependency on central bank refinancing are seen as key objectives of the reform.

While the immediate impact may involve a degree of liquidity tightening, analysts broadly contend that the measure will enhance risk management practices within banks. Over the longer term, it is expected to foster a more resilient, self-reliant, and stable financial market environment, aligning monetary operations with broader macroeconomic stability goals.