The Bangladesh Bank has backtracked on its earlier decision to discontinue the 14-day repo facility — a key tool for borrowing from the central bank — following significant disruption on the financial market caused by acute liquidity shortages, central bank officials said.
In February, the central bank decided that it would phase out 28-day repo facility by April and the 14-day facility by July.
This move was part of its broader monetary reform agenda under $4.7-billion loan programme supported by the International Monetary Fund.
A repo, or repurchase agreement, is a mechanism that allows banks to borrow short-term funds from the central bank in exchange for government securities.
The banks agree to repurchase the securities after a specific period at a slightly higher price. The facility helps banks manage short-term liquidity mismatches and provides temporary relief in times of cash crunch.
Currently, the Bangladesh Bank conducts repo auctions for 7, 14 and, previously, 28-day tenures.
However, the 28-day repo was officially discontinued through a circular issued on March 24, which took effect on April 10.
Along with this, the central bank also reduced the frequency of repo auctions from twice to once a week.
The withdrawal of the 28-day repo facility led to a sharp liquidity squeeze on the market, as many banks had relied on this longer-tenure instrument for short-term funding needs.
Bangladesh Bank data showed that banks borrowed a total of Tk 83,757 crore through repo operations in March, with about 72 per cent of the amount taken under the 28-day tenure.
Following market volatility and complaints from banks about severity of liquidity crisis, the central bank has now decided to retain the 14-day repo facility.
Officials said that while the 28-day option would remain discontinued to align with IMF-guided reforms, halting the 14-day repo at this point could severely disrupt money market functioning.
The original plan to phase out both the 14-day and 28-day repos was designed to encourage banks to use more market-based tools, such as call money market and interbank transactions, rather than depending heavily on the central bank for liquidity.
Officials argued that excessive reliance on repo facilities discouraged banks from developing their own liquidity management capacity.
There were also concerns that some banks were misusing the repo facility by borrowing at low interest rates and investing the funds in higher-yield government securities, particularly long-term treasury bonds.
This strategy not only distorted the yield curve but also undermined monetary policy effectiveness.
The Standing Lending Facility and Standing Deposit Facility — both part of the central bank’s liquidity management tool — will remain operational on a daily basis. Banks can borrow unlimited amounts under the SLF to meet immediate funding needs.
