Daily cash reserve ratio (CRR) requirement for commercial banks is relaxed to give the lenders some breathing space amid persisting liquidity tightness, officials said Tuesday.
The central bank's decision lowering CRR-maintenance requirement by 50 basis points from existing 3.50 per cent to 3.0 per cent takes effect from today (Wednesday).
However, the biweekly average of CRR requirement will remain unchanged at 4.0 per cent, according to a circular issued Tuesday by the monetary policy unit of the Bangladesh Bank.
The regular CRR-cutting decision comes couple of weeks after the banking regulator had shared its plan with the treasury heads of the banks about the squeezing of borrowing facility from the central bank through eliminating 28-day-tenure liquidity window against repo, which will be effective after Eid-ul-Fitr.
Bangladesh Bank executive director (monetary policy unit) Dr Md. Ezazul Islam said the central bank took the decision as part of modernisation of monetary-policy framework and streamlining liquidity management in the banks.
With the revision in the mandatory CRR requirement, the central banker said, the commercial banks have been given some comfort through which they can well manage their liquidity amid the prevailing liquidity tightness.
Seeking anonymity, another BB official said the regulator keeps curtailing the repo facility to make it once a week from five days a week. And in a latest move, the 28-day-tenure liquidity instrument under the repo facility is set to be phased out after the Eid, which might create some initial pressure on the banks in terms of liquidity management.
"And this CRR-cutting decision will help the banks use the funds for other purposes," says the official.
The percentage of cash required to be kept in reserves as against the bank's total time and demand deposits is called Cash Reserve Ratio (CRR).
The banking industry has a total of some Tk 17.80 trillion worth of deposits and banks altogether require to keep over Tk 620 billion (3.50 per cent) in the reserve with the BB as CRR daily. With the latest revision, the banks from now on need to keep a minimum of around Tk 530 billion (3.0 per cent) as CRR in reserve.
Bankers have hailed the decision, saying that it will give some sort of comfort for the banks under the current circumstance of liquidity tightness.
Talking to the FE, managing director and chief executive officer of Pubali Bank PLC Mohammad Ali said the cut in daily CRR would help raise excess liquidity and banks would be able to get returns from the additional funds.
He said the regulator continues shirking borrowing facility for the banks as part of its move to streamline liquidity management in banks, which creates some liquidity-related pressure in some of the banks.
"The cut will certainly ease the pressure on the banks to some extent," the top executive of the bank said.
Managing director and chief executive officer of Mutual Trust Bank (MTB) PLC Syed Mahbubur Rahman says it is a kind of flexibility the central bank is providing the banks under the current liquidity pressure.
"This is a kind of option through which I can regularly plan my liquidity management better. This is a timely regulatory move," the experienced banker told the FE correspondent.
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