Bangladesh Bank has decided to introduce two transaction-based reference rates from April 15, replacing the long-standing quotation-based system to address distortions in the money market and establish a credible benchmark for pricing financial contracts.

Officials said the move aligns with global practices such as the Secured Overnight Financing Rate (SOFR), which relies on actual transactions instead of indicative quotes.

The announcement came at a press conference held at the central bank headquarters in Dhaka on Monday.

The central bank will publish two benchmark rates. The Bangladesh Overnight Financing Rate (BOFR) will serve as a risk-free or secured rate, derived from interbank repo transactions backed by government securities.

The Dhaka Overnight Money Market Rate (DOMMR) will reflect unsecured lending conditions, based on call money transactions where banks lend without collateral.

Debt Management Department director Istequemal Hussain said that the existing Dhaka Interbank Offered Rate (DIBOR), introduced in 2010, depends on rates submitted by banks.

Many banks do not provide data regularly, and quoted rates often fail to capture actual market conditions, weakening its reliability as a benchmark, he said.

To address these limitations, the new rates will be calculated daily using real transaction data captured in Bangladesh Bank’s automated platforms.

Istequemal said that the secured rate will use data from the Financial Market Infrastructure System, while the unsecured rate will rely on transactions recorded in the Electronic Dealing System for the interbank market.

Initially, the central bank will publish overnight and one-week tenors for the secured rate, while the unsecured rate will cover overnight, one-week, one-month and three-month maturities, he said.

Both rates will be calculated using a volume-weighted average, allowing larger transactions to have a greater impact on the final rate, he added.

Statistical techniques will filter out abnormal trades to prevent distortion.

If the minimum number of transactions is not met, a rolling window method will incorporate data from previous working days to ensure consistency, he said.

For instance, overnight secured rates will consider transactions over the previous three working days with at least 10 deals, while unsecured overnight rates will use the previous day’s transactions with the same minimum requirement, he explained.

The central bank will publish the rates every morning, providing banks, financial institutions and investors with a reliable indicator at the start of each business day, Istequemal said.

These benchmarks will guide the pricing of loans, bonds and floating-rate instruments, including derivatives.

Istequemal said that the reform would align interest rates with actual liquidity conditions, improve price discovery and strengthen market discipline.

The central bank has prepared the rates on a trial basis since March and will continue regular monitoring and annual reviews to refine the framework, he added.