Call money rate hits 12-year high
Staff Reporter :
The average call money rate, the interest rate at which a bank borrows from another overnight, reached 9.60 percent yesterday, the highest in 12 years amid hikes in the policy rate by the Bangladesh Bank.
Bangladesh Bank data showed on Sunday that the banks borrowed Tk 3,251 crore from their counterparts (call money market) as demand for money from cash-strapped banks and the government exceeded supply.
This demand pushed the weighted average rate to a staggering 9.60 percent, marking the highest since 2012 when it reached 12.82 per cent.
Increased liquidity pressures have led to a steady rise in the weighted average call money rate since June last year when it stood at 6 per cent. This increase in the call money rate comes in line with the Bangladesh Bank’s decision to gradually raise its policy rate.
Earlier on January 17, BB raised the policy rate to 8 per cent from 7.75 per cent in November and 7.25 per cent in October, aimed at countering inflationary pressures.
Bankers linked the liquidity dearth to the BB’s sale of US dollar to banks and a rise in policy rate, which the banking watchdog has been pursuing in its effort to curb inflation by reducing excess demand in the market through making money costlier.
Banks are obligated to maintain the Cash Reserve Ratio (CRR) against deposits. To meet this requirement, they are forced to borrow at higher interest rates, they added.
However, other group of sector insiders said that the economic slowdown is making it harder to collect loans from borrowers and high inflation is eroding consumer confidence, causing deposits to dry up.
The excess liquidity in the banking sector dropped to Tk 1.41 lakh crore in November 2023 from Tk 1.7 lakh crore in September 2023.The liquidity crisis dipped the private sector credit growth to 9.9 per cent in November 2023.
In response to the prevailing dollar crisis, the Bangladesh Bank has sold over $28 billion from the country’s foreign currency reserves over the past 30 months squeezed further liquidity flow in banks.
Between July-December of 2023, the BB sold $5.69 billion of foreign currency to banks meaning that the central bank withdrew more than Tk 62,500 crore from banks.
BB sold $6.7 billion to banks in July-November of the financial year of 2023-24, $13.5 billion in FY23, and $7.62 billion in FY22 which is a major cause of liquidity dearth.
The new interest rate for overnight loans indicates that there is acute shortage of funds in the market.
Experts also said that the central bank’s recent move to raise the policy rate posting the eighth straight spike in the rate since the tightening cycle began in May 2022,further intensified the liquidity shortage.
Besides, some Sharia-based banks and few other banks have been facing a liquidity shortage for the last few months, which impacted the overall banking sector’s liquidity, they added.
Meanwhile, Banks lend overnight money to each other to fill the asset-liability mismatch or to meet sudden demand for funds. The market was introduced in the country in the early 1980s.
