Bangladesh Bank withdraws 360 days special repo facility – Dhaka Tribune
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Now, the banking system has overnight or 1-day, 7-day, 14-day and 28-day term repo facilities
The special repurchase agreement (repo), launched by the Bangladesh Bank to implement the stimulus packages to deal with economic losses due to Covid-19 has been withdrawn.
The Bangladesh Bank, in a circular, said that it is scrapping the 360-day special repo facility for banks and non-bank financial institutions as there was no demand for such a facility anymore.
According to the circular, the facility was introduced for effective money management on the market amid the implementation of different stimulus packages to revive the country’s economy during the pandemic period.
The Debt Management Department of Bangladesh Bank sent the circular to all the Managing Directors (MD) and Chief Executive Officers (CEO) of all the scheduled banks.
According to Investopedia, repo is a form of short-term borrowing for dealers in government securities. In the case of a repo, a dealer sells government securities to investors, usually on an overnight basis, and buys them back the following day at a slightly higher price.
That small difference in price is the implicit overnight interest rate. Repos are typically used to raise short-term capital. They are also a common tool of central bank open market operations.
Requesting anonymity, a banker said that this was a very good initiative for Bangladesh Bank because this introduced long-term liquidity facilities during the pandemic.
The central bank set the rate of the existing short-term repo at 5.25% during the pandemic.
On May 13, 2020, the Bangladesh Bank introduced the long-term repo, a special window for banks and non-bank financial institutions from borrowing money from the central bank at around 6% interest for 360 days.
Usually, at present, the banking system has overnight or 1-day, 7-day, 14-day and 28-day term repos. Banks and financial institutions can borrow money by selling treasury bills and bonds to the central bank in this repo facility.
But under the special repo system, banks could borrow funds or money for 360 days by pledging treasury bills and bonds with Bangladesh Bank in excess of the Statutory Liquidity Ratio (SLR) during the Covid-19 pandemic.