SDF rate cut to 8.0pc to rescue call-money mkt

Policymakers bill it as a major monetary-policy change as the central bank cuts the standing deposit facility (SDF) rate by 50 basis points to 8.0 per cent trying to revitalize the sagging call-money market.

Monetary policy department (MPD) of the Bangladesh Bank (BB) issued Tuesday a circular on the latest change in the SDF with effect from July 16, 2025. Currently, the interest rate on SDF is 8.50 per cent.

Bangladesh Bank Executive Director Dr Md Ezazul Islam said the central bank made the decision to discourage growing use of SDF instruments by the commercial banks having surplus funds and make the call-money market more vibrant,

However, the policy rate and SLF or standing liquidity facility remain unchanged at 10 per cent and 11.50 per cent respectively.

The move happens to come a day after The Financial Express ran a report headlined 'Call money market falters amid trust deficit/ Healthy banks park surplus credits in SDF despite low returns'.

Citing the central bank's statistics, the report mentioned that the affluent banks piled up Tk 727.30 billion in the SDF in June this year, and the accumulated figure was 158-percent higher than the previous month's count of Tk 282.22 billion.

On the other hand, Tk 887.90 billion was transacted on the call-money market in June 2025-down by around 15 per cent from the May figure of Tk 1.04 trillion.

Seeking anonymity, a BB official says well-off commercial banks, foreign ones in particular, used the state-guaranteed deposit instrument of the central bank most because call-money market is an interbank platform where collateral is not required.

The central banker says the decision may discourage the banks having liquidity surplus from putting their funds in SDF because of lower gains while the weighted average rate (WAR) on the call-money market was recorded 10.35 per cent in June.

However, bankers and money-market analysts say the move will certainly lessen incomes of the affluent banks a bit but it will contribute little in reviving the moribund call-money market because of prevailing interbank trust deficit.

Chief executive officer of Standard Chartered Bank Bangladesh Naser Ezaz Bijoy says the decision on slashing standing deposit facility by 50 basis points will have impact on profitability but the decision to deploy surplus in call money is contingent on the availability of unsecured non-trade credit limit on the bank counterparty.

"Hence, the reduction in rate may influence the decision to invest in call money for local banks but may have limited influence for foreign banks."

The seasoned banker notes that foreign banks account for a small part in the entire banking ecosystem here. "So, the ratio of foreign banks in the SDF will certainly be lesser."

The banks normally support local banks through their credit lines in underlying transactions in terms of trade.

Managing Director and Chief Executive Officer of Mutual Trust Bank (MTB) Syed Mahbubur Rahman thinks there is little option to use surplus credits of a bank under the current macroeconomic situation.

Under the current banking context, banks keep reducing the counterparty limit because of the current situation prevailing in the banking industry, he mentions.

"So, banks look for safer avenues and SDF is such an option. I don't think any major change will happen in short term due to the cut in SDF rate," the experienced banker says.

On condition that he shouldn't be quoted by name, the treasury head of a state-owned commercial bank says injecting vibrancy in the faltering call-money market will not be possible on the interbank spot market through cutting SDF rate by 50 basis points.

"The rate of 8.0 per cent is still higher under the current investment context because it is completely secure. We need to make call money secure. If we can do that, it will certainly be vibrant," the senior banker opines.

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