How Cenbank Provides Liquidity Support

Bangladesh Bank recently published the monetary policy statement for the first half of FY2025. The central bank's monetary policy gives an overview of the economy. In addition, Bangladesh Bank declared the policy rate of 8.50%, SLF 10.00%, and SDF 7.50% for the first half of the fiscal year 2025. Furthermore, BB decided to keep the crawling peg at a mid-rate of 117 Tk per USD.

BB is said to be the lender of last resort. It provides liquidity support to the banks to maintain and stabilize the financial sectors during this crisis. Banks are unable to maintain enough liquidity to lend from BB.

BB provides liquidity support to the banks through the money market instruments. These are in detail,

Repo Facility: The Repo facility is the facility BB provides for conventional banks at the policy rate on overnight basis by purchasing government securities. The interest rate for the different rates of policy rate.

    Overnight: 8.50%

    7-Days: 8.60%

    14-Days:8.70%

    28-Days:8.75%

Assured Liquidity Support: BB provides this facility for the primary dealer banks at the policy rate 8.50% on an overnight basis through govt. securities.

Standing Lending Facility: BB provides the SLF to the trouble banks at the SLF rate that is 10.00%

Demand Loan: This is only for the Bangladesh Krishi Bank and Rajshahi Krishi Unnayan Bank at the bank rate that is 4.00%

Mudarabah Liquidity Support (MLS): This liquidity support for Sharia-based Islamic banks is based on undistributed cash incentives on inward remittances.

Islamic Banks Liquidity Facility: This is for the Sharia-based Islamic bank on a 7-day and 14-day basis based on Bangladesh Government Investment Sukuk.

Refinance Facility: This provides financing for conventional banks at the bank rate, particularly for developing priority sectors.

Bangladesh Government Islamic Investment Bond: For a 6-month or yearly basis.

BB provides liquidity support for troubled banks to stabilize their financial sectors. BB postponed the daily repo facility in July instead of giving it twice a week as a tight monetary policy stance.