BB brings term repo to ease liquidity crisis
The Bangladesh Bank has launched a fresh liquidity support window named term repurchase agreement (repo) to supply money to the cash-strapped banks.
The banks, which face a liquidity crunch, are now allowed to receive money through the new window of the central bank in three tenures -- seven days, 14 days and 28 days.
The term repo is a way for banks to avail money from the central bank for more than one-day duration.
Term repo transaction will be conducted by the central bank through auctions held on all working days, according to a central bank circular issued recently.
If any bank requires immediate funds, it can go to the central bank to receive fund by using the repo window.
The banking regulator has another window named reverse repo through which any bank, which enjoys excess liquidity, can submit fund with the BB by using the window.
The bank will enjoy 4.75 percent interest for keeping its fund with Bangladesh Bank. For intervening holidays, the tenure of term repo will be automatically extended by the number of holidays involved, a BB official told The Daily Star.
For example, the three-day tenure of overnight repos issued on Thursday will end on Saturday, he said. For overnight repos, the interest rate for banks would be more than the fixed rate of 6 percent, if they want to avail liquidity through the term repo, according to the BB notice.
The banks will have to mention the interest rate and tenure of the repo when they place their bills before the central bank.
The cash-strapped banks have not been receiving any money through the overnight repo for long as the yield of the product is much higher than the rate of the call money market. The interest rate of the call money market has been hovering between 3 percent and 4 percent in the recent months.
The BB official said many countries including the neighbours already introduced the term repo window.
The central bank's latest initiative is expected to help the banks ride out the liquidity crisis, he said.
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