Bangladesh Overhauls Interest Rate Benchmark System

Bangladesh is set to implement a sweeping structural reform in its money market as the central bank moves away from bank-proposed reference rates towards a transaction-based benchmark system designed to better reflect real market conditions.

The Bangladesh Bank has announced that the new framework, modelled on internationally recognised standards such as the Secured Overnight Financing Rate (SOFR), will come into effect from 15 April. Under the revised system, benchmark interest rates will be calculated directly from actual interbank transactions rather than indicative quotations submitted by commercial banks.

The announcement was made on Monday at a press briefing organised by the Debt Management Department at the Bangladesh Bank headquarters.

Shift Away from the Existing System

Officials explained that the long-standing Dhaka Interbank Offered Rate (DIBOR) relied heavily on self-reported interest rate quotations from banks. This approach, they said, often failed to accurately represent prevailing market conditions, particularly when some institutions did not consistently provide data.

The new mechanism is intended to address these weaknesses by ensuring that only executed transactions form the basis of rate determination, thereby improving transparency and reliability.

Two New Benchmark Rates Introduced

Under the revised framework, the central bank will publish two distinct reference rates:

These dual benchmarks are expected to provide a clearer and more comprehensive picture of liquidity conditions, credit risk, and actual borrowing costs across the banking system.

Broader Maturity Structure

The Bangladesh Bank also confirmed that the new system will publish rates across multiple maturities. For the BOFR, overnight and one-week rates will be made available. For the call money-based benchmark, rates will be published for overnight, one-week, one-month, and three-month tenors.

To ensure accuracy and stability, the calculation methodology will incorporate statistical filtering techniques designed to minimise the impact of outlier transactions or irregular market activity. In cases where transaction volumes are insufficient on a given day, previous business day data may be incorporated to maintain continuity.

Toward a More Transparent Market

Officials at the central bank believe the reform will significantly improve price discovery in the financial system. By anchoring interest rates to actual market transactions, the new framework is expected to reduce distortions and enhance confidence among market participants.

The Bangladesh Bank said the reform would make loan pricing, bond valuation, and floating-rate financial instruments more efficient and transparent. It is also expected to facilitate the development of new investment products and strengthen the overall depth of the domestic money market.

In addition, policymakers anticipate that a more credible benchmark system will improve Bangladesh’s attractiveness to foreign investors by aligning domestic financial practices with international standards.

Testing and Implementation

According to the central bank, the new reference rate system has been undergoing experimental calculation since March. From 15 April onward, the updated rates will be published daily on the Bangladesh Bank’s official website each morning, making them publicly accessible to financial institutions, investors, and market analysts.

Officials also indicated that the system will remain under continuous review, with refinements expected over time to further improve accuracy, responsiveness, and market relevance.

A Step Toward Modernisation

The transition marks a significant milestone in Bangladesh’s financial market development. By replacing perception-based benchmarks with transaction-driven data, the central bank aims to establish a more robust and internationally credible interest rate framework.

If successfully implemented, the reform is expected to play a key role in modernising monetary policy transmission, improving liquidity management, and strengthening overall financial stability in the country’s banking sector.