Call money rate holds steady before Eid as banks tap BB support

On the eve of the long Eid-ul-Azha holiday, Bangladesh's inter-bank call-money market showed signs of stability, with banks successfully managing their liquidity needs, thanks in part to timely support from the central bank.

The weighted average rate (WAR) of call money inched up to 10.44 per cent on Wednesday, the last working day before Eid, from 10.39 per cent the previous day.

A week earlier, it stood at 10.06 per cent, according to official data and market sources.

While the rate range remained unchanged between 9.90 per cent and 11.50 per cent, most transactions were executed at rates between 10.00 and 10.50 per cent, suggesting steady conditions in the overnight borrowing market.

Traders attributed the modest rise to seasonal spikes in cash demand ahead of major religious festivals.

Despite the rate uptick, total turnover in the inter-bank call money market declined to Tk 31.25 billion from Tk 44.71 billion a day earlier, and down from Tk 36.09 billion recorded the previous week.

In Dhaka's banking hubs - Motijheel, Dilkusha, and other commercial zones - long queues formed at bank branches as customers rushed to withdraw funds before the extended Eid closure. But liquidity remained under control.

"Most banks have been able to manage their funds effectively ahead of the Eid vacation with support from the Bangladesh Bank (BB)," said the head of treasury at a leading private commercial bank.

According to the treasury official, adequate liquidity assistance from the central bank, particularly through repo and special facilities, helped banks meet demand without triggering volatility.

A BB official confirmed the injection of around Tk 500 billion into the banking system to maintain stability, despite reports of some banks facing difficulties withdrawing physical cash due to a shortage of new banknotes.

As the demand for physical cash rises around Eid, the Bangladesh Bank has instructed all commercial banks to ensure uninterrupted operations of alternative delivery channels (ADCs) during the holidays.

These include ATMs, point-of-sale (POS) terminals, internet banking, mobile financial services (MFS), and other digital platforms.

"Pressure on cash is gradually easing as more people now rely on digital payment methods," said a senior market operator.

The increasing use of plastic money is helping reduce dependency on cash withdrawals. Currently, over 41 million debit cards and 2.57 million credit cards are in circulation across the country.

In addition, mobile money usage, agent banking, and online banking are contributing to a shift in consumer behavior, particularly during festive periods.

Eid-ul-Azha, the second largest religious festival in Bangladesh, will be celebrated on June 7. Scheduled banks will remain closed from June 5 to June 14, covering both Eid and weekly holidays.

However, to support industrial workers and ensure smooth export-import operations, branches in industrial zones will open selectively on June 5, 11, and 12.

Bankers and analysts expect the call money rate to ease slightly after the Eid break, assuming current liquidity conditions continue and there are no major disruptions in demand.

"We expect a post-Eid easing in rates if demand subsides and liquidity flows remain steady," a central bank official said.

As digital transactions rise and central bank's support remains steady, Bangladesh's banking system appears well-positioned to weather the seasonal liquidity stress that accompanies major holidays.

siddique.islam@gmail.com