B Mirror Report: Bangladesh Bank has announced that from 3 May this year, commercial banks facing liquidity shortages will be able to access only seven-day repo facilities, reducing overall liquidity support compared to previous levels.

Currently, banks can borrow from the central bank through seven-day and 14-day repo facilities, while 28-day repo support was discontinued in April last year. The new guidelines, published under the central bank’s Open Market Operations framework, also introduce a 5% haircut on the market value of securities.

Repo, or repurchase agreements, allow commercial banks to borrow short-term funds from the central bank, with interest rates determined through these transactions. By buying and selling government securities under this system, Bangladesh Bank manages the money supply in the market.

Experts say limiting repo to only seven days will reduce banks’ reliance on central bank borrowing, encourage them to manage liquidity independently, and stimulate activity in the interbank market. Md Ezazul Islam, director general of the Bangladesh Institute of Bank Management (BIBM), noted that central bank borrowing effectively creates additional money, which can increase inflation. “Introducing only the seven-day repo will be good for the market. Banks now have fewer borrowing options and will turn more to the call money market,” he said.

A senior Bangladesh Bank official said the central bank has purchased around $5.5 billion from commercial banks in the current fiscal year, injecting over Tk70,000 crore into the market. “With banks already holding sufficient liquidity, discontinuing the 14-day repo is unlikely to create major difficulties,” the official added.

Private sector bankers noted that with only a seven-day repo, interbank lending may shrink as banks focus on meeting their own liquidity needs rather than borrowing excess funds from the central bank. Another central bank official emphasised that banks should rely on the call money market first, approaching Bangladesh Bank only when funds are unavailable elsewhere.

The move also aims to curb opportunities for banks to borrow at lower rates through 14- and 28-day repo facilities and invest in higher-yield government securities. Officials said keeping only the seven-day repo will make open market operations more effective and align with the interest rate corridor framework.