The scope for banks to avail Bangladesh Bank's (BB) repo facility is set to narrow as relevant auctions will be held weekly instead of daily from upcoming July.

Repurchase agreements, or repos, are a form of short-term borrowing by banks through the depositing of government securities with Bangladesh Bank on condition to buy them back at a specific date, usually for a higher price.

Banks can generally borrow from the central bank through repo, assured liquidity support facility (ALSF) and standing liquidity facility (SLF) and Islamic bank liquidity facility (IBLF), which is meant for Sharia-based banks.

Auctions for the remaining instruments will be held every working day as usual.

The central bank took the decision in line with recommendations of International Monetary Fund (IMF) under which it approved $4.7 billion in loans for Bangladesh recently.

The central bank informed of the decision to commercial banks and asked them to prepare for better liquidity management in the coming days.

The development came through a meeting between the BB's monetary policy department and a portion of treasury heads of banks at the central bank headquarters yesterday.

Md Ezazul Islam, executive director of the central bank presided over the meeting. The BB will hold another such meeting with the remaining treasury heads today and tomorrow.

The latest decision will help turn the money market more vibrant and is a part of the interest-based monetary policy, a senior central bank official told The Daily Star.

The money market is an organised exchange market where banks can lend and borrow short-term debt securities among themselves.

The narrowing of liquidity support from the central bank will prompt banks to go to the money market, he said.

Now, the repo rate is 8 percent while the interbank lending interest rate can range from 6.50 percent to 9.50 percent.

A treasury head of a private commercial bank told The Daily Star that this would help stabilise the interest rate in the call money market.

During the meeting, the BB also warned banks to stay within the interest range meant for interbank lending, citing that a few banks had recently violated the directive.

Banks borrowed Tk 13,08,779 crore from the central bank in the last fiscal year of 2022-23 under the repo and the assured liquidity support facility, up from Tk 175,987 crore a year ago, BB data showed.