The ongoing chaos in the country's financial market is the manifestation of inefficiency in managing the macro-economy, economists said.
They warned that measures taken lately to shore up liquidity in banks could stoke inflationary pressure.
Their observations came following the government's decision to deposit 50 per cent of state enterprises' funds with private commercial banks (PCBs) from the previous level of 25 per cent and cut in Cash Reserve Requirement (CRR) by 1.0 percentage point.
The central bank on Tuesday decided to slash the CRR by one percentage point to 5.5 per cent until December 31 this year. The decision to this effect was taken earlier in a meeting with the directors of the banks, where the finance minister was present. The holding of the meeting has drawn widespread criticism.
The central bank also extended the deadline for meeting the revised limit of Advance-Deposit Ratio (ADR) by banks for three months through March 31, 2019, instead of December 31, 2018.
Some banks have already failed to maintain the current ADR of 85 per cent and the central bank re-fixed it to 83.5 per cent on January 30 this year, asking the banks to comply with the rule by the end of June this year.
"There was no need to re-fix the ADR at that time, rather the central bank should have strictly warned the non-complying banks to bring down their ADR to the existing limit," Dr Zaid Bakht told the FE on Tuesday.
"As a regulator, Bangladesh Bank could even go for penalising the banks not paying heed to the regulator's order," he added.
Mr Bakht, a former research director of the Bangladesh Institute of Development Studies (BIDS), argued that the central bank ultimately encouraged other banks to breach the set ADR by not doing so.
"Now extending the deadline to comply with re-fixed ADR illustrates the regulatory weakness," he added.
Dr Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh (PRI) noted that the serious imbalances have surfaced in both the money market and the balance of payments (BoP).
He said that the gap in credit and deposit growth rates contributed to the current liquidity crisis in the banking sector.
"It was primarily due to the diversion of savings to National Savings Directorate (NSD) instruments offering interest rates well above the market rates," he said. "This is a macroeconomic management problem."
"The liquidity problem was also exacerbated by the increasing burden of non-performing loans," he added.
However, some economists are not ready to accept the observation that investment in government savings instruments was a leading cause behind the ongoing liquidity crisis. The net investment in the saving tools in recent months would bear that fact, they argued.
Dr Bakht, now the chairman of Agrani Bank, said that CRR is an important policy tool and it should not be hiked or reduced abruptly.
Reducing the current rate would enhance the money supply by Tk 100 billion.
"The way the decision to cut CRR has been taken is not appropriate," he said, adding, "Some banks are facing the shortage of lendable funds due to their aggressive and bad lending." "You can't enhance the money supply to the entire economy to fix the problem of those who triggered the problem for their own mismanagement."
The economist also said that the increased money supply by cutting CRR may not reduce interest rates anytime soon as the banks have to rely on deposits to lift their lendable fund.
"Public entities may not also feel comfortable to put additional fund as deposits with private banks due to the incident of Farmers Bank," he observed.
Dr Bakht said that all these measures reflect some inefficiency in the macroeconomic management of the country and could build up inflationary pressure in the near future.
He also said that import is rising fast due to the rise in demand from both the private and the public sectors and more lending by banks would push it up further. "At the same time, capital flight may increase through trade mis-invoicing ahead of the national elections," he argued.
Regarding the external sector imbalance, Mr Mansur said that current account deficit jumped to $ 5.3 billion in the first seven months of the current fiscal year while the trade deficit crossed the $ 10 billion-level.
"The central bank should stop injecting dollars into the market to prevent further depreciation of taka," he said. "Otherwise, there will be more withdrawal of liquidity from the banking system."
Calling the moves "unprecedented", Dr Monzur Hossain, a senior research fellow at the BIDS, said that the measures to cut CRR and ramp up money supply would make it difficult for the authority to manage the macro-economy prudently in the coming days.
"Ignoring the monetary programme and awarding the wrongdoers will not bring any positive outcome," he added.
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