The inter-bank call money rate recorded an unprecedented rise at 190 per cent on Sunday, the second day after enforcement of the new cash reserve requirement (CRR) rules for the commercial banks to contain inflation.

The call rates were swinging between 55 and 190 per cent on the day against 50 per cent and 175 per cent a day earlier. However, most of the deals were settled at rates ranging from 100 per cent to 150 per cent, treasury officials said.

One non-bank financial institution borrowed loan at 190 per cent from the inter-bank call money market yesterday, another official also said.

The call money rate rose to 175 per cent on Thursday last, marking a historical high, as some lending banks suddenly raised their call rates to cash in on the liquidity crunch in the market.

Earlier, the call money rate increased up to 150 per cent in 2006 during the BNP-led four party alliance regimes.

The central bank raised CRR by fifty basis points to 6.0 per cent for the commercial banks on December 1 last to help curb inflationary pressure on the economy.

Under the new CRR rules, the banks are required to maintain the reserve at 5.50 per cent instead of 5.0 per cent earlier on daily basis, but the bi-weekly average has to be 6.0 per cent in the end.

An analyst of the Bangladesh Bank said there would a positive impact on inflation due to increase of CRR, which would help decline prices of local commodities during December-January period.

The declining trend of food prices has already contributed to a drop in inflation, which slipped to 6.86 per cent in October from 7.61 per cent in September, according to the official data of the Bangladesh Bureau of Statistic which released on Sunday.

The food inflation decreased to 8.43 per cent in October from 9.72 per cent in September.

Director General of Bangladesh Institute of Bank Management Dr Toufic A Chowdhury told daily sun that the call money rates surged to another historical high due to lack of proper liquidity management by the local banks.

“Most of the commercial banks have invested their funds in the share markets for quick gains, but those were blocked as the share prices fell sharply during the past two weeks,” he added.

The historic high in call money rate on Sunday was mainly due to aggressive dealings by few banks, managing director of Pubali Bank Limited Helal Ahmed Chowdhury told daily sun Sunday evening.

He also said that the Bangladesh Bank should set a ceiling for call money rate as the local market has remained volatile for last few days.

“Higher call money rate may push the interest rates on deposits up in the near future to meet the growing demand for liquidity and as a result the banks are raising the interest rates to attract more deposits from their clients,” he added .

The Bangladesh Bank injected Tk 32.79 billion in the money market under a special repurchase agreement (Repo) on Sunday, which seemed to be inadequate, fund managers said. The total demand for money in the call money market stood at Tk 120 billion on Sunday.

Source: Daily-Sun, Bangladesh/20th Dec 2010