DIBOR, the country's first benchmark interest rate on the financial markets, was introduced by the Bangladesh Foreign Exchange Dealers' Association (BAFEDA) with central bank encouragement.
More than 50 banks including 12 foreign banks operate in Bangladesh's financial market.
DIBOR is a rate at which banks will lend to each other for a specific maturity period in the Dhaka market.
'We are introducing DIBOR in the banking sector to make the foreign exchange market more competitive and Bangladesh Bank will monitor DIBOR closely,' Atiur told Reuters.
He said interest rates for inter-bank money transactions would be lower with the introduction of DIBOR and more foreign direct investment would come into the country.
BAFEDA Chairman Syed Abu Naser Bukhtear Ahmed said banks in Bangladesh would publish five tenor rates -- overnight, one week, two weeks, one month and three months -- to ensure transparency in the country's money market.
The interest rate will be between 4.46 percent and 6.5 percent.
BAFEDA has been collecting data from its member commercial banks since December to calculate the market average benchmark and the benchmark rates have been published on BAFEDA's website since early this month.
Hongkong and Shanghai Banking Corporation Limited (HSBC) in Bangladesh and Bank Asia Limited carried out the first deal on Tuesday worth 30 million taka ($4.3 million) on the basis of the DIBOR benchmark rate, officials said.
The trade involved a one-week inter-bank transaction with daily re-pricing based on future one-week DIBOR rate as the reference, and was the first ever index-based floating rate transaction in the local currency, they added.
'The trade signifies the acceptance and credibility of DIBOR as an independent indicator of the financial market by the market participants,' said Bahauddin Saad Ahmed, chief dealer of HSBC global markets in Bangladesh.
He said that more opportunities will soon emerge for local financial institutions and business entities to apply DIBOR in pricing interest rate and foreign exchange-related products.
India, Sri Lanka and Pakistan have already introduced benchmark interest rates for smooth operation of their financial markets.
($1=69.27 taka)
(Reporting by Serajul Islam Quadir; editing by Stephen Nisbet)
((serajul.quadir@thomsonreuters.com; +880-2-8332062 RM: serajul.quadir.reuters.com@reuters.net)) Keywords: BANGLADESH ECONOMY/DIBOR (If you have a query or comment on this story, send an email to news.feedback.asia@thomsonreuters.com) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
© 2010 AFX News
