• Friday, Oct 23, 2020
  • Last Update : 03:12 am

Bangladesh Bank slashes repo rate to inject bank funds into stock market

  • Published at 09:21 pm September 24th, 2020
Representational image Bigstock

The central bank lowered the rate with a view to align the REPO rate for stocks with the BB's   REPO rate in its monetary policy statement for the current fiscal year

The Bangladesh Bank (BB) on Thursday reduced the repurchase agreement (REPO) rate to 4.75% from 5% to form special funds by scheduled banks for   investment into the stock market.

The central bank lowered the rate with a view to align the REPO rate for stocks with the BB's  REPO rate in its monetary policy statement for the current fiscal year.

In the MPS, the BB lowered the overnight REPO rate to 4.75% from 5.25% with a view to make money cheaper for banks.

The central bank issued a circular in this regard.

The rate of usual REPO rate had been at 5.25% when the BB announced the special fund formation scope for the stock market on February 10 this year, setting the applicable REPO rate at 5 % exclusively for the stocks fund, said a high official of Bangladesh Bank.

As the BB reduced the REPO rate in its MFS for FY21, the cost for the stocks fund became higher than the usual rate applicable, prompting the central bank to come up with the circular, he added.

As per the BB data, 17 banks have so far formed Tk1,742 crore in special funds under which banks’ investments through such funds are not calculated when it comes to their capital market exposure.

Of the fund, the banks have invested Tk495 crore to the stock market until now.

In February, each bank was asked to form a Tk200-crore fund for the stock market either with their own fund or from the BB’s fund borrowed through the REPO arrangement.

Thursday’s BB circular also fixed the rate of interest of Sukuk in which banks would be able to invest from their stock funds.

For the fix rate Sukuk, banks could make investments if coupon rate is fixed to at least 8% while the rate must be equivalent to or at least the interest rate of 10-year treasury bond plus 0.5%. 

For the variable coupon rate of corporate bonds, the rate of interest must be equivalent to the interest rate of a 10-year Treasury bond plus 1% at the least.

For the fixed rated corporate bond, the rate of interest must be at least 10%.

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