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The central bank’s growing fund injection to the market through various instruments is helping to control the interbank call money rate even ahead of the Eid-ul-Fitr, when the rate normally goes up following mounting liquidity demand, officials and bankers said.
The instruments are repo, liquidity support facility, Islamic banks liquidity facility (IBLF), and Mudaraba liquidity facility (MLS).
As a result, the interbank call money rate on a short-term or overnight loan continued to decline to 6.01 per cent as on April 06, from a record high of 7.0 per cent on January 25.
Call money rate is the weighted average interest rate on a short-term or overnight loan from one bank to another to meet an urgent requirement.
The call money rate started rising sharply from March 21, 2022, when it was at 2.05 per cent.
Following the Russia-Ukraine war, volatility in the forex market, and mass fund withdrawal from the banks riding on rumours of liquidity shortfall, the demand for short-term interbank loans kept rising. As a result, the call money rate hit a record high of 7.0 per cent on January 25, 2023.
The banks usually choose the emergency loans to fill asset-liability mismatch, comply with the statutory CRR and SLR requirements, and meet any sudden demand for funds.
According to the Bangladesh Bank (BB), six banks and one financial institution submitted 28 bids amounting to Tk 24.17 billion as 7-day tenor facility in the auction on March 28.
Five banks submitted 16 bids worth Tk 20.51 billion as one-day liquidity support facility, while five banks submitted five bids amounting to Tk 32.15 billion as 14-day IBLF. All bids were accepted by the BB’s auction committee.
Accordingly, a total of Tk 76.83 billion was provided under repo, liquidity support facility, and IBLF.
Seeking anonymity, a BB official said they managed to control the call money rate at around or just over 6.0 per cent by injecting more liquidity to the market.
It gave some sorts of relief to the banks in this peak time, when the demand for local currency requirement normally goes up significantly.
“The banks are coming to the BB to get funds under repo mechanism, and we are accepting all their bids now. So, the liquidity situation in the banks keeps improving gradually. That’s why the liquidity demand through interbank call money rate is low even ahead of the Eid festival.”
The BB official also said the rate shot up to 7.0 per cent a couple of months ago - when the amount of excess liquidity in the banks was showing a downward trend.
Simultaneously, an upward trend in remittance earning as well as the banks’ growing share of forex holding helped to ease liquidity pressure in the country’s banking sector, he added.
The amount of excess liquidity in the banking sector dropped by Tk 577.07 billion to Tk 1.46 trillion at the end of December 2022 - from that of Tk 2.03 trillion in June 2022.
When contacted, Managing Director and Chief Executive Officer of Mutual Trust Bank Limited Syed Mahbubur Rahman said the share of overnight loans declined slightly while the rate went up a bit.
Amid the current macro-economic situation - domestically and globally - customers are more cautious in taking loans that eased the pressure on liquidity, he noted.
Seeking anonymity, an executive of Brac Bank Limited said the central bank is daily injecting money ranging from Tk 150 billion to Tk 200 billion.
“The amount is quite big, and we did not observe such trend during other times. At the same time, people’s trust on the banking system keeps increasing. This is actually improving the banks’ liquidity situation,” he added.