The inter-bank call money rate soared to its highest cap at 7.0 per cent -- a rise by nearly 200 per cent in a year since January 2022 -- on Wednesday amid a liquidity crisis on the financial market.
The central bank of Bangladesh has an informal directive not to cross the 7.0 per cent limit, according to banking industry people.
The weighted average rate on call money rose to 7.0 per cent on Wednesday from 5.81 per cent on December 29, 2022, according to Bangladesh Bank data.
The call money rate has started rising sharply since March 21, 2022, when it was at 2.05 per cent, according to the BB data.
The call money rate is the interest rate on a short-term or overnight loan from one bank to another to meet their urgent requirements.
Banks usually choose emergency loans to fill the asset-liability mismatch, comply with the statutory CRR and SLR requirements, and to meet any sudden demand for funds.
Withdrawal of deposits on the grounds of higher inflation and panic withdrawals from banks following loan irregularities in several banks are believed to be the main reason behind the liquidity shortage.
The central bank's dollar sales to banks to settle import bills and a rise in treasury bill rates were also creating stress on liquidity.
On January 15, the BB decided to increase its policy rates by 25 basis points, the repo rate to 6.00 per cent from 5.75 per cent, and the reverse repo rate to 4.25 per cent from 4.00 per cent as a part of its current policy stance.
The private sector credit growth increased to 13.97 per cent in November over the same period a year earlier.
Bankers said that there are many instruments for inter-bank borrowings - the rate of all is on the rise.
They said the main reason is liquidity shortage in the market as well as the recent spike of the repo rates.
The total liquid asset in the banking industry stood at Tk 3.998 trillion as of November 2022 or down by nearly 9.5 per cent since June 2022.
Mr Md Shaheen Iqbal, a deputy managing director at the BRAC Bank, told the FE that the call money rate has been surging as the repo rate has been increased since January 15 last.
The other instruments of inter-bank borrowing are also rising, he said.
He said the short notice deposit (SND), which ranges between 2 and 14 days, also surged over 9.0 per cent recently. However, the central bank asked the banks not to allow over 9.0 per cent.
Another borrowing instrument of inter-bank borrowing called long-term deposit, beyond 15 days, is also on the rise.