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Financing Stimulus Packages

BB launches special repo to ease liquidity in banks

Published : Friday, 15 May, 2020 at 12:00 AM  Count : 213
Business Correspondent

Bangladesh Bank (BB) on Wednesday introduced special repo facilities for one year to help banks and NBFIs with more fund to provide loans under the government declared stimulus packages.
Banks and non-bank financial institutions (NBFIs) can now collect cash from the central bank through special repurchase agreement (repo) for one year, as per central bank circular issued on the day.
Typically, the BB supports cash to the banks and NBFIs for regular repo for one to 28 days. Recently, it reduced regular repo's interest rate to 5.25 percent to help banks get loan from the central bank at lower rates.
The special repo rate will be determined at auction by the auction committee.  Banks and NBFIs can take this fund by submitting their extra securities of statutorily liquidity reserve (SLR) to the Bangladesh Bank, according to a circular.
The instruction will be effective immediately and it would continue until further notice, the circular added.
The government announced stimulus packages worth over 98,619crore to overcome coronavirus economic impact, would inject the money to the economy through banks.
The cash support of the central bank will be used only for implementation of the stimulus package announced by the government, the BB circular clarified.
Based on the existing rates, considering the liquidity situation of the money market, the interest rate and amount of special repo would be decided in every auction by the auction committee of Bangladesh Bank, said a high official of the central bank.
The interest rate of the special repo will not be fixed because it was a long term repo but the rate of special repo would not vary significantly from the regular repo, he added.
Commercial bankers said the new repo facilities would help banks to implement the stimulus package.  Banks would get more time to repay, which was the advantage of the special repo, they also said.
Besides, the entities were also barred from investing the money in government securities and in the BB's bills without prior approval from the BB's debt management department.
The banks will have to submit bids as usual to avail the special REPO facility and the BB's auction committee would take the final decision.
Prior to this, the central bank launched a number of refinance schemes with the aim to inject money into the market to support the financial institutions in implementing the government-announced stimulus packages.
Under the scheme, the central bank would inject Tk 50,742.5 crore into the money market.

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