BB brings special repo to ensure liquidity in economy

Bangladesh Bank has introduced a special repo (repurchase agreement) for a period of 360 days in order to ensure a smooth supply of money in the economy hit hard by coronavirus pandemic.

The debt management department of the central bank issued a circular in this regard on Wednesday and sent it to managing directors and CEOs of all scheduled banks and financial institutions.

According to the circular, the Covid-19 outbreak has affected the economy of Bangladesh; to address this, the government and Bangladesh Bank have recently announced various financial incentive packages.

In order to streamline liquidity management in the money market while implementing these incentive packages, a special repo for a period of 360 days has been introduced, said the circular.

Based on the existing repo rate, the interest rate and amount of this special repo will be determined by the auction committee of the central bank considering the monetary policy and liquidity situation of the money market, it said, adding that the decision of the auction committee would be final.

Participating scheduled banks and financial institutions will be able to accept this amount by depositing additional government securities of SLR held by them with the central bank.

The repo transaction will be treated as a foreclosure transaction subject to compliance with the rules and regulations.

In addition, the remaining amount of the face value will be paid as repo by applying a margin of 15% and 5% on the face value of treasury bills and bonds, respectively.

Total securities mortgaged (at market value / face value) against such repo will be treated as liability and these securities will not be treated as collateral or easily exchangeable assets for any other sector.

The money received through this repo will have to be invested in the implementation of various financial incentive packages recently announced.

The debt management department of the central bank should be informed on a monthly basis by mentioning the sectors in which this money is being invested, read the circular.  

However, the money received through this repo cannot be invested in government securities and Bangladesh Bank bills without the prior approval of the BB department concerned. Banks and financial institutions will submit bids to the central bank as per the prevailing rules.

The directive will take effect immediately and will remain in force until further notice, the circular added.

sr/at/teb