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Money outside banks balloons to Tk 2.58 trillion despite a sharp rise in deposit rates as the bets cannot stem mattress-money accumulation, compelling liquidity-hungry bankers to borrow costly funds.
Banking sources have said mattress money or currency outside banks' vaults had begun returning with depositors' shaken trust restored by bits after a previous crisis, but once again it began reversing the course.
Sources at Bangladesh Bank (BB) said the amount of deposit outflow from the banking system kept declining gradually since June 2023 through the first four months of the current fiscal year (FY'24) in a much-needed respite to the commercial lenders at a time when liquidity situation continues tightening.
But, since the month of November, it has gone into a reverse course with the volume of currency outside bank vaults having increased by around Tk 25 billion to Tk 2.48 trillion from October's count of Tk 2.45 trillion, according to the latest BB data.
The upward trend continued in December, January and February with the figures reaching Tk 2.55 trillion, Tk 2.57 trillion and Tk 2.58 trillion respectively.
As the demand for cash continues rising, bank borrowing through interbank sources keeps climbing at higher rates. Riding on the higher money demand, the call-money rate rose to 8:67 per cent on April 04, 2024 from 8.50 per cent a month ago.
Officials and money-market analysts cite factors like growing yield on government securities, inflationary burden and the advent of season of festivals, wedding in particular, and pre-Eid seasons behind the surge in mattress money.
The sources said the deposit outflow from banks kept rising since September 2022 following reports of gross irregularities in some commercial banks. The amount rose to a record-high Tk 2.92 trillion in June 2023.
The BB-mandated new rate regime on the market-based reference rate, known as SMART (six-month moving average rate of treasure), later played a part in bank-deposit buoyancy.
As the yield on government securities kept rising after the central bank tightened money supply to contain inflation, many institutional and individual depositors in banking industry started diverting their funds into the risk-free investment instruments.
Seeking anonymity, a BB official has said currency outside the banks normally goes up a bit in the second quarter of a fiscal year. But there are some other factors, like election and inflationary pressure, which might cause the rise.
As the lending rate in the banking sector continues rising mainly because of the growing trend in the reference rate called SMART, the rate for deposits keeps rising too.
Belying the bets, the volume of currency outside the banks has been on an upturn in recent months, the official said.
Managing director and CEO of Dhaka Bank Emranul Huq says because of higher returns, institutional and individual investors in banks have already started diverting their funds into government treasuries: treasury bills and bonds.
"This could be a major reason behind the rise in currency outside the banks."
Simultaneously, the experienced banker says, there are many people, businesspeople in particular, who invested their deposited money in their businesses or personal purposes prior to Ramadan, the start of the Eid season.
"It could be another reason," the bank's top executive adds.
Contacted, Policy Exchange of Bangladesh chairman Dr M Masrur Reaz said higher-inflation regime is another factor as people have to count higher cost of living.
"Although the rate of inflation officially dropped to 9.67 per cent in February, but the price of commodities in the market does not indicate any fall. So, people might withdraw deposits for their living."