Cash in circulation keeps rising for 7th straight month

Business Report :

The amount of cash in circulation increased for the seventh consecutive month in May amid low confidence of depositors in the banking sector and high inflationary pressures.

According to Bangladesh Bank data, the volume of the currency outside the bank reached Tk270,658 crore in May, increasing from Tk264,349 crore in April and Tk261,195 crore in March.

This marked a rise from Tk257,574 crore in February 2024, Tk257,295 crore in January 2024, Tk254,860 crore in December 2023, Tk248,441 crore in November 2023 and Tk245,943 crore in October 2023.

According to Bangladesh Bureau of Statistics data, the overall inflation hit 9.72% in June. Inflation has remained near 10% since March 2023.

Deposits in banks rose slightly to Tk1,700,000 crore in May from Tk1,681,000 crore in April and Tk1,653,000 crore in December.

The liquidity crisis has deepened as banks have not received deposits at the desired level due to persistent inflation, bankers said.

Proposed bank mergers under the central bank’s prompt corrective action framework issued on December 5, 2023 further fuelled panic among depositors, they said.

The total deposits in the Islamic banking system plunged by Tk3,938 crore to Tk439,465 crore at the end of March 2024 compared with that at the end of December 2023.

Excess liquidity in Islamic banks nosedived to Tk1,518 crore in March 2024 compared with that of Tk6,643 crore in December 2023.

Due to the high volume of cash outside banks, the financial sector has been struggling with severe liquidity shortage, which compelled the banks to rely on borrowing from the central bank to maintain operations, bankers said.

When cash is held outside banks, it reduces the effectiveness of the central bank’s efforts to control money supply, which is crucial to managing inflation and economic stability, they added.