A three-year pause on Bangladesh Bank bills is over as the regulator is set to restart the liquidity-sterilization card to offset the injection of high-powered money into the banking system.
As part of the liquidity-mopping-up plan, aimed at inflation control, the banking regulator will hold auction of 30-day-tenure bills today (Wednesday) and on November 27 where banks, financial institutions, individual and institutional investors can participate in competitive bidding, according to BB sources.
But money-market analysts term the latest central-bank move in the current liquidity context 'very surprising' as it would create more burdens on the banks with the tightening of the market further.
In fact, the central bank's move comes following a Financial Express (FE) report titled 'Return of high-powered money in bond form: Generous fund feeding to banks thru special bonds crosses Tk 400b' after the regulator disbursed Tk 55.62 billion to the special bondholders.
In response to the article, the central bank officially stated that it would issue instruments like BB bills of the same amount to withdraw the money from the market.
Bangladesh Bank spokesperson Husne Ara Shikha said the central bank, as part of its contractionary monetary-policy stance, would hold the auction of the BB bills to squeeze the money flow on the market.
Seeking anonymity, a BB official said the central bank resumed liquidity injection, amounting to Tk 55.62 billion in the last three days of October, under AR (assured repo) facility.
Following the FE report after BB governor Dr Ahsan H. Mansur's stance on not supplying high-powered or print money, the official said, the central bank took the decision to withdraw the same amount of money from the banking system so there be no net injection of such money.
The central banker said banks, financial institutions, individuals and institutional investors could take part in the competitive bidding on the 30-day-tenure BB bills and the minimum investment size in the bidding is Tk 1.0 million.
The FE correspondent talked to a dozen bank executives, including managing directors and treasury officials, over the resumption of BB bills at a time when the banking sector is facing liquidity tightness. But all of them agreed sharing their thoughts on condition of not disclosing their identity.
The managing director of a private commercial bank said the call- money market would "possibly become dysfunctional with the resumption of BB bills as banks having liquidity surplus will go for such bills to gain more instead of interbank spot market".
He mentions that the policy rate tripled by 150 basis points in quick successions while repo facility curtailed to once a week, which creates immense pressure on the banks' liquidity-management abilities.
"And the BB bills are feared to further squeeze the existing liquidity-availing window," says the bank's top executive.
The treasury head of a private conventional bank says the liquidity- mopping instrument is normally used when the market is glut with liquidity. But, this time, it will be applied at a time when the liquidity market is dried amid contractionary monetary regime.
According to the BB, the central bank last used the month-long BB bills on November 18, 2021.
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