Call money rate goes up further

The inter-bank call money rate in Bangladesh rose further yesterday owing to the growing demand for cash ahead of Eid-ul-Azha, the government's increased borrowing from the banking system and banks' purchases of US dollars aimed at settling import bills.

The weighted average rate in the inter-bank call money market, where banks borrow from each other on an overnight basis, hit 5.85 per cent, data from the central bank showed.

It stood at 5.48 per cent on Wednesday, the highest at least since 2016, the latest for which data is available on the Bangladesh Bank website.

The banking sector is now going through liquidity stress as many lenders are buying US dollars in exchange for the local currency from the central bank to settle import bills, which have surged to record levels driven by higher global commodity prices.

The Bangladesh Bank injected a record $7.62 billion into the market in the fiscal year that ended on June 30, meaning an equivalent local currency amount has moved in the other direction, intensifying the liquidity crunch.

In 2021-22, the government's borrowing from the banking sector rose sharply, amid weak revenue generation, putting additional pressure on the liquidity position of banks.

It borrowed Tk 64,755 crore from the banking system in the last concluded fiscal year in contrast to Tk 26,078 crore a year ago.

People are also withdrawing a significant amount of funds from banks on the occasion of Eid-ul-Azha to meet their expenditures centring the festival, including those for buying sacrificial animals.

Syed Mahbubur Rahman, managing director of Mutual Trust Bank, says the banking sector has been facing liquidity stress for several months.

"A spike in fund withdrawal ahead of Eid has tightened the liquidity situation."

Although the withdrawal of cash from banks will return to normalcy after the Eid festival, the liquidity strain would not ease anytime soon, Rahman said.

Another managing director of a private commercial bank, on the condition of anonymity, says the call money rate has gone up because of the increase in the benchmark lending rate of the central bank.

The BB raised the policy rate, or repurchase agreement (repo) rate, by 50 basis points to 5.50 per cent on June 30 as part of its effort to implement a contractionary monetary policy to contain inflation. The move had made borrowing costlier for lenders.

The chief executive said that the central bank has hardly injected any fund in the form of repo support into cash-strapped banks in recent days, intensifying the liquidity crunch.

"Some banks have hoarded excess dollars to cash in on the greenback shortage in Bangladesh. Now, the central bank's move will force them to sell their dollars to tackle cash shortage."