Hasibul Aman

Bangladesh Bank (BB) has injected fresh fund into the money market to meet an extra demand ahead of Eid as well as helping ease the heated call money market.

The inter-bank call money rate was stable on Wednesday despite of withdrawing pressure of cash from the banks ahead of the Eid-ul-Fitr festival, treasury officials said.

The central bank last week provided the banking sector with a daily liquidity support of Tk 80 to 90 billion through repurchase agreements (repo), Tk 10 to 15 billion higher than that of previous week.

The excess pumping of liquidity into the money market was eying on meeting an extra demand ahead of the country’s biggest religious festival.

“The total amount of daily liquidity supply through repo currently jumped to Tk 80 to 90, which is Tk 10 to Tk 15 billion higher than the normal volume,” an official of Securities Department of BB said on Thursday.

Another BB official said there is no liquidity shortage and the money regulator is supplying as per the demands of the market to negotiate the extra pressure on liquidity from the demand side before the biggest Muslim festival. “Bangladesh Bank, as the lender of the last resort, is providing repo as soon as banks are demanding,” he said.

He also informed that the inter-bank call money rate was hovering around 17 percent on average last week, soaring from 7 to 8 percent in the previous week.

But the lending rates among banks reportedly hit 25 percent on Thursday.

The rate, however, already surpassed the lending cap set by the regulator. Earlier in January this year, BB put a ceiling on the inter-bank lending rate at 12 percent to avoid volatility in the banking sector.

The BB official said it is usual that call money rates heat up before the Eid, the highest demanding period of liquidity.

It is not appalling, if the rate rises around 20 percent as the current lending rate for the public is nearly 16 percent. But it will be a problem if the rate soars to 25 to 30 percent, he added.

Call money rate hit a record high to 190 percent in mid December last year, leaving the money market in a volatile situation.

The rate took a volatile turn as the banks themselves dismantled their asset-liability management, for which many of them were show caused later by the regulator, the BB official pointed out.

The money market, however, remained comparatively stable this time as banks had been sent caution notes about the heated up liquidity market, BB sources said.

They were also repeatedly warned of bringing down their credit-deposit ratio (CDR) within the set limits, which might have contributed to the present comparatively eased liquidity situation, the official added.

News: Daily Sun/ Bangladesh/ Aug-27-2011