Call money rate rises

Cash withdrawal from the banking system increased substantially ahead of the Eid-ul-Fitr, raising the interbank call money rate to some extent.

The rate rose to 6.47 per cent on April 16 from 6.01 per cent recorded on April 06, according to Bangladesh Bank (BB) records.

The weighted average interest rate of the short-term or overnight loan from one bank to another to meet an urgent requirement is called call money rate.

Sources said the rate has not been increased substantially due to the growing liquidity support to the market by the central bank through various instruments in the recent days.

The instruments are repo, liquidity support facility, Islami Bank Liquidity Facility (IBLF) and Mudaraba Liquidity Facility (MLS).

The call money rate has started rising sharply since March 21, 2022 , when it was 2.05 per cent.

Following the Russia-Ukraine war and the volatility in the forex market coupled with mass withdrawal of funds from the banks amid rumours of liquidity shortfall, the demand for the short-term interbank loans kept rising and the call money rate hit a record high of 7.0 per cent on January 25, 2023.

Banks usually choose the emergency loans to fill the asset-liability mismatch, comply with the statutory CRR and SLR requirements and to meet any sudden demand for funds.

Seeking anonymity, a BB official said the central bank managed to control the call money rate just over 6.0 per cent by injecting more liquidity to the market, giving some sorts of relief to the banks in this peak time when the demand for local currency requirements normally goes up significantly.

The BB accepted all the bids from banks under the repo mechanism, he added.

The official said the BB has been providing the banks with an average of Tk 80 billion each day through such instruments for the last one month. In the last seven days, the daily average figure shot up to around Tk 100 billion.

"It really helps improve the liquidity position of the banks. That's why the demand for loans in the call money market has not increased much ahead of the Eid," the official said.

Simultaneously, the upward trend in the earnings from inward remittance as well as growing share of forex holdings by banks have helped ease the liquidity pressure on the banking sector, according to the central bank official.

The amount of excess liquidity in the banking sector plunged by Tk 577.07 billion to Tk 1.46 trillion at the end of December 2022 from Tk 2.03 trillion in June 2022.

When contacted, Managing Director and Chief Executive Officer of Mutual Trust Bank (MTB) Limited Syed Mahbubur Rahman said the customers are more cautious about taking loans under the current macroeconomic situations domestically and globally, and it contributed to ease the liquidity pressure on the banks.

Seeking anonymity, an executive of Brac Bank Limited said the central bank is daily injecting a large amount of money in recent days.

"The amount is so big that we did not see it anytime before. At the same time, people's trust in the banking system keeps improving again. This is actually contributing to improving the liquidity situation in the banks," he added.

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