Bangladesh Bank has raised Repurchase agreement or repo rates by 25 basis points to 6 percent in order to restrain inflationary pressures which are continuous since 2021 basically caused by the Russia-Ukrane war. The Monetary Policy Department (MPD) of Bangladesh Bank made the decision on 15th January 2023. The repo rate was last changed on 29th September 2022, when it was raised by 25 basis points to 5.75 percent.
The repurchase agreement rate or repo rate is also known as the overnight repo rate. When there is a shortfall of funds, the central bank lends money to commercial banks at the repurchase agreement rate, or repo rate, also known as the overnight repo rate.
Along with the Repo Rate, Monetary Policy Department (MPD) the reverse repo rate also increased from 4 percent to 4.25 percent as part of a monetary policy stance the central bank called ‘cautiously accommodative’.
These increased Repo Rate and Reverse Repo both will be effective from today on 16th January, 2023.
What is Repo Rate?
The repo rate is the interest rate at which the Central Bank lends money to commercial banks. Repo is an abbreviation for Repurchase Agreement or Repurchasing Option. Banks obtain loans from the Bangladesh Bank (BB), the Central Bank of our country, by selling qualifying securities.
The central bank and the commercial bank would reach an agreement to repurchase the securities at a set price. When banks are short on funds or need to maintain liquidity under volatile market conditions, this is done. The repo rate is utilized to manage inflation.
What is Reverse Repo Rate?
The reverse repo rate is the rate at which Bangladesh Bank borrows funds from the country’s commercial banks. It is the rate at which commercial banks in our country dispose of excess funds with the Central Bank, typically for a short period of time. As the name implies, reverse repo is the inverse contract to the repo rate.
Source: Bangladesh Bank Circular.