Banks and non-bank financial institutions (NBFIs) can now collect cash from the central bank through special repurchase agreement (repo) for one year.
Bangladesh Bank has introduced such long-term repo facilities for the first time to help banks and NBFIs provide loans under the government-declared stimulus packages for coronavirus-hit industries, says a circular issued on Wednesday.
Generally, the Bangladesh Bank 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 twice.
The rate of the special repo will be decided at the time of auction by the auction committee. Banks and NBFIs can take this fund by submitting their extra securities of statutory liquidity reserve to the Bangladesh Bank as lien.
"So, banks and NBFIs can enjoy the securities' coupon payment," said a senior official of the Bangladesh Bank.
The official also said the rate of special repo would not vary largely from the regular repo.
The instruction will be in effect immediately and will be continued until further notice, the circular added.
If banks or NBFIs do not have enough liquid money to lend to industries, they can collect cash through repo from the central bank.
To make this liquid money cheaper to tackle the coronavirus-struck economy, the central bank on March 23 reduced interest by 25 basis points to 5.75 percent from six percent. On April 9, it further reduced this rate by another 50 basis points to 5.25 percent.
Another move of the central bank is to cut cash reserve ratio to four percent which also helps banks pull reserves of around Tk20,000 crore and to provide loan to the industries.
The government recently declared deferent stimulus packages for different industries. For large industries, Tk30,000 crore and for small and medium industries, Tk20,000 crore have been declared.
Half of the packages has to be arranged by banks and NBFIs, and the other half will be provided by the central bank as refinance facilities.