Banks now can borrow from the central bank's repo facility once a week instead of existing two days, but get a new window for overnight funding in exigencies.
A circular issued Monday to this effect by Debt Management Department of the Bangladesh Bank (BB) states that the commercial banks will get the repo facility only on every Tuesday from November.
"If any Tuesday coincides with a public holiday, the repo-lending facility will be conducted on the subsequent working day," the circular reads.
Although the BB squeezed the prevailing two weekly days of repo-backed cash-feeding facility that has been in place since July last, the banking regulator opened a new borrowing instrument called overnight repo through which the banks will be able to get one-day-tenure funds on the day of the Reserve Maintenance Period (RMP) for the convenience of maintaining Cash Reserve Ratio (CRR) of the banks, it says.
On the other hand, the Standing Lending Facility (SFL) and the Standing Deposit Facility (SDF) will continue at prevailing rates daily, the firman states, adding that the BB will lend to the banks against repo instruments for seven days, 14 days and 28 days' tenures.
Seeking anonymity, a BB official said limiting repo facility to once a week will not only force commercial lenders to seriously focus on efficient fund management but also help make transactions on the call- money market vibrant.
Considering bank's liquidity pressure following the cut to maintain CRR, the official explains, the central bank introduced a new lending window through which scheduled banks will be able to get overnight fund supports on the day of the RMP, helping banks to maintain their CRR requirement, if need be.
"I think banks might face some stress temporarily, but it will be a good move for them in the long run to manage their stock of credits more efficiently," the central banker adds.
Sources at the BB said the banking regulator cut down the liquidity support against the repo facility to meet an IMF (International Monetary Fund) condition, as part of its $4.70-billion lending package for stabilising the country's macroeconomic situation.
