Bangladesh is set to implement a significant structural overhaul of its money market as the central bank transitions away from bank-submitted reference rates towards a fully transaction-based benchmark system designed to reflect genuine market dynamics more accurately.
The Bangladesh Bank has confirmed that the new framework—modelled on globally recognised standards such as the Secured Overnight Financing Rate (SOFR) used in major financial markets—will come into effect from 15 April. Under this revised approach, benchmark interest rates will no longer be derived from indicative quotations provided by commercial banks, but instead calculated directly from verified interbank transactions.
The announcement was made on Monday during a briefing organised by the Debt Management Department at Bangladesh Bank headquarters.
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Departure from the Existing DIBOR Framework
Officials explained that the long-standing Dhaka Interbank Offered Rate (DIBOR) system relied heavily on self-reported lending rates submitted by banks. This methodology, they noted, often failed to capture true market conditions, particularly in periods when some institutions provided incomplete or inconsistent data.
As a result, the benchmark was sometimes considered less reflective of actual liquidity conditions in the banking system. The new structure aims to correct these shortcomings by ensuring that only executed transactions form the basis of rate calculation.
Central bank officials stressed that this shift represents a move towards greater transparency, consistency, and international alignment in monetary market operations.
Introduction of Dual Benchmark Structure
Under the revised system, Bangladesh Bank will publish two distinct reference rates, covering both secured and unsecured segments of the money market:
| Benchmark Type | Official Name | Basis of Calculation | Market Segment |
|---|---|---|---|
| Secured Rate | Bangladesh Overnight Financing Rate (BOFR) | Collateral-backed interbank transactions | Secured money market |
| Unsecured Rate | Dhaka Overnight Money Market Rate | Unsecured interbank call money transactions | Unsecured money market |
The introduction of parallel secured and unsecured benchmarks is expected to provide a more comprehensive understanding of liquidity conditions, counterparty risk, and short-term borrowing costs across the financial system.
Expanded Maturity Coverage and Methodology
The Bangladesh Bank has also confirmed that the new framework will extend beyond overnight rates to include multiple maturity profiles.
For the BOFR, both overnight and one-week tenors will be published. Meanwhile, the unsecured call money benchmark will cover overnight, one-week, one-month, and three-month maturities, offering a more detailed yield curve for short-term funding conditions.
To enhance accuracy and reduce volatility, the calculation methodology will apply statistical filtering techniques designed to exclude abnormal or outlier transactions. In instances where trading activity is insufficient on a given day, data from the previous business day may be incorporated to ensure continuity and stability in published rates.
Enhancing Market Transparency and Price Discovery
Central bank officials believe the reform will significantly improve price discovery across Bangladesh’s financial system. By basing benchmarks on actual transactions rather than indicative quotations, the system is expected to reduce distortions and provide a more reliable reflection of real borrowing costs.
The Bangladesh Bank also noted that the new structure will enhance the pricing of loans, government and corporate bonds, and floating-rate financial instruments. This, in turn, is expected to support the development of more sophisticated financial products within the domestic market.
Furthermore, policymakers anticipate that a more credible and transparent benchmark framework will strengthen investor confidence and improve Bangladesh’s attractiveness to international capital markets by aligning domestic practices with global standards.
Testing Phase and Implementation Timeline
According to the central bank, the new benchmark system has already been undergoing trial calculations since March. From 15 April onwards, the official rates will be published daily on the Bangladesh Bank’s website each morning, making them accessible to banks, investors, analysts, and the wider public.
Officials also emphasised that the system will not be static. It will remain subject to ongoing review and refinement to ensure responsiveness to market developments and to further improve its accuracy over time.
A Step Toward Financial Modernisation
The transition represents a key milestone in Bangladesh’s broader financial sector reform agenda. By replacing perception-based benchmarks with transaction-driven data, the central bank aims to modernise monetary policy transmission and strengthen the efficiency of liquidity management.
If successfully implemented, the new framework is expected to enhance financial stability, improve market discipline, and deepen the country’s money market infrastructure.
Ultimately, the reform signals Bangladesh’s intent to align more closely with international best practices, marking a decisive step towards a more transparent, resilient, and globally integrated financial system.