Bangladesh Bank has taken the initiative to launch an effective reference rate for the money market for the first time to increase transparency and efficiency in the country's financial sector.
Two separate reference rates will be published daily from April 15, which will be used as an important indicator in determining interest rates.
In a circular issued on Monday (April 13), the central bank said that the need for a reliable and universally accepted benchmark rate to determine interest rates in various financial contracts including various loan agreements, bonds, floating rate-based financial products—especially derivatives—has been felt for a long time.
This initiative has been taken in that context.
In the new system, two money market reference rates will be determined and published daily based on actual interbank transactions.
One of them is the Bangladesh Overnight Financing Rate (BOFR), which will reflect risk-free transactions.
The other is the Dhaka Overnight Money Market Rate (DOMMR), which will be determined based on unsecured interbank transactions.
The central bank said that these rates will be calculated on every working day and published on their website.
The related calculation methodology has also been published so that market participants can easily follow it.
The circular has instructed all scheduled banks and financial institutions in the country to follow this reference rate where applicable.
Those concerned believe that if this initiative is implemented, the determination of interest rates in the country's money market will be more transparent, information-based and in line with international standards.
According to experts, just as SOFR or other benchmark rates are used in the international market, the introduction of its own reliable reference rate in Bangladesh will increase discipline and confidence in the financial sector.
In addition, the uncertainty in determining the price of loans will be reduced and the market will be more predictable for investors.