Transaction-based reference rate introduced in money market

The Bangladesh Bank (BB) has introduced a transaction-based reference rate in the money market to enhance transparency and efficiency.

From now on, interest rates will no longer be determined solely by banks’ quoted rates—known as the Dhaka Interbank Offered Rate (DIBOR)—but instead by actual transaction data.

The move aligns Bangladesh with global standards such as the Secured Overnight Financing Rate (SOFR), widely used in international markets.

The central bank announced the initiative at a press conference at its Motijheel headquarters today, organised by the Debt Management Department. The new reference rates will be published regularly on the Bangladesh Bank website starting April 15.

DIBOR, introduced in 2010, was based on banks’ offered rates for interbank lending. However, many banks did not consistently provide data, limiting its accuracy.

To address this, BB has developed an automated system to capture real transaction data and introduced two new benchmark rates:

• Bangladesh Overnight Financing Rate (BOFR): a secured, risk-free rate derived from interbank repo transactions.
• Dhaka Overnight Money Market Rate (DOMMR): reflecting unsecured call money transactions.

Rates will be calculated using a volume-weighted mean method, ensuring larger transactions have proportionate impact. BOFR will be available for overnight and one-week tenors, while DOMMR will cover overnight, one-week, one-month, and three-month tenors.

Statistical techniques such as outlier management will prevent abnormal transactions from distorting rates. If insufficient transactions occur on a given day, a rolling window method will incorporate data from previous working days.

Bangladesh Bank expects the framework to establish a reliable benchmark for interest rates, facilitating pricing of loans, bonds, and floating-rate instruments, while enabling new investment products.

Officials noted the rates have been prepared on a trial basis since March and will be available daily from April 15. The system will be refined through regular monitoring and annual reviews.