A splurge of money from stimulus packages and private-investment stalemate prompted the central bank to restart mopping up excess liquidity from the market, as a measure of taming inflation.
As the method began Monday through resumption of auctioning bills after more than three years of suspension, the Bangladesh Bank (BB) withdrew Tk 26.05 billion from the market on the first day, officials said.
They said the sale of the instruments was aimed at ensuring proper liquidity management in the banking system.
As part of the latest move, the BB withdrew the amount from the market by issuing 07-Day and 14-Day BB Bills at an auction held at the central bank's headquarters in Dhaka.
The cut-off yield, generally known as interest rate, on 07-Day BB bills was fixed at 0.54 per cent on the day while the yield on 14-Day BB bills was 0.75 per cent, according to the officials.
At the auction, the bidders quoted the yields on 07-Day BB bills ranging between 0.48 per cent and 2.75 per cent while the range of yields on 14-Day BB bills quoted 0.64-2.97 per cent, they added.
"We've accepted bids amounting to Tk 26.05 billion against Tk 68.75 billion offered by conventional banks and non-banking financial institutions (NBFIs) at the auction," a BB senior official told the FE.
The central banker expects that participation of the bidders may increase at the next auction of 30-Day BB bills scheduled for Wednesday.
"We've expected better yield on the BB bills in the upcoming auctions," Md. Arfan Ali, president and managing director of Bank Asia Limited, told the FE while explaining the overall market situation.
The banks may be encouraged to participate in the upcoming auctions of the BB bills if the yields on the monetary instruments increase, according to the senior banker.
"The central bank's ongoing open-market operation will be successful if the yields on BB bills reach a reasonable level," Mr. Ali noted.
Talking to the FE, Emranul Huq, managing director (MD) and chief executive officer (CEO) of Dhaka Bank Limited, said banks may show their interest to invest excess liquidity in the instruments if the yields on the BB bills exceed the weighted average rate on the inter-bank call- money market.
The weighted average rate (WAR) on inter-bank call money rose to 2.26 per cent Thursday from 2.23 per cent of the previous working day, the BB data showed.
The BB officials, however, said the central bank has started mopping up liquidity from the market to bring down the amount of excess funds to an 'acceptable level' from the existing position on the same.
The banks' surplus liquidity hit an all-time high of Tk 2315 billion as of June 30 this calendar year, fuelled by lower private credit growth in a sign that the investment situation has cooled.
Expansionary monetary policy coupled with the implementation of government's stimulus packages have driven up liquidity in the banking system with a splurge of money, according to bankers,
Besides, injecting fresh funds by the central bank into the market through purchasing the US currency from the banks continuously has pushed up excess liquidity in the market, they explained.
The BB injected funds worth Tk 653.13 billion, equivalent to US$7.70 billion, which were bought from the banks in the past fiscal year (FY), 2020-21, in the banking system.
Economists expressed the fear of inflationary pressure on the economy if the excess liquidity is used for unproductive or less-productive sectors in the near future.