Call money in interbank transactions heats up while treasuries stay steady following the policy-rate hike by the central bank in government bid for taming stubborn inflation.
Bankers said the interbank call-money rate marked a significant rise Sunday. The weighted average rate (WAR) of call money rose to 9.87 per cent on the day from 9.50 per cent of the previous day. It was 9.56 per cent on Wednesday last.
The call rate ranged between 9.50 per cent and 10.50 per cent on the day against the previous range between 9.00 per cent and 10.50 per cent.
However, most of the deals were settled at rates varying between 9.75 per cent and 10.00 per cent, according to the market operators.
They also said the upward trend in call-money rate may continue until Thursday as all the scheduled banks will have to maintain the 4.0-percent cash reserve requirement (CRR) on the day with the central bank.
Under the existing rules, the banks are allowed to maintain the reserve at 3.50 per cent instead of the existing 4.0 per cent on a daily basis, but the bi-weekly average has to be 4.0 per cent in the end.
Besides, most banks will act cautiously, particularly on the call-money market from next week as the central bank's repo facility comes once a week instead of existing two days from November 2024.
Under the new policy, all the scheduled banks will get the repo facility only every Tuesday from November. If any Tuesday coincides with a public holiday, the repo-lending facility will be conducted on the subsequent working day.
"The transaction volume on the call-money market may squeeze after implementation of the new policy on repo facility," a senior treasury official at a leading private commercial bank told the FE about the money-market equations.
He also says the existing upward trend of the call-money market is likely to continue up till the end of this week for the sake of maintaining CRR with the central bank.
However, the total turnover on the interbank call-money market rose to Tk 45.07 billion on Sunday from Tk 42.87 billion on the previous working day. It was Tk 31.50 billion on Wednesday last.
Talking to the FE, a senior official of the Bangladesh Bank said both volume and rate increased in the call-money transactions on the day, just after implementation of the new policy rate.
Earlier on Tuesday, the central bank raised the policy rate, also known as repo rate, by 50 basis points to 10.00 per cent in an effort to curb inflationary pressure on the economy.
The policy-rate hike means banks under liquidity crunch will now have to pay more interest for loans taken from the central bank.
To manage liquidity more effectively, the BB also raised the upper limit of the policy interest corridor. The Standing Lending Facility (SLF) rate rises to 11.50 per cent, up from 11.00 per cent, while the Standing Deposit Facility (SDF) floor rate moves up to 8.50 per cent from 8.00 per cent.
On the other hand, yields in all categories of treasury bills remained static despite the 50-basis-point increase in policy rate, which became effective from Sunday, officials said.
Money-market analysts say the central bank seems to control the grip of rising yields on treasury bills to avert possible volatility in the interest regime as yields on government securities normally go up following rise in policy rate. But it did not happen in Sunday's biddings for 91-day, 182-day and 364-day treasury bills.
The Bangladesh Bank facilitates the auctions of government securities helping the government to manage funds domestically to meet its budgetary shortfalls.
According to the BB, the government, as part of its domestic bank borrowing, borrowed a total of Tk 75 billion from Sunday's bidding on treasury bills.
The cut-off yield was same as last week's bidding 11.75 per cent for 91-day, 11.90 per cent for 182-day and 11.99 per cent for 364-day treasury bills.
On anonymity, a BB official said they did not allow the yield rise further because the government has enough funds in their accounts to meet its expenses. "That's why the government took Tk 75 billion against the notified amount of Tk 85 billion," the central banker said.
The official said last week's (held on October 21, 2024) auction of treasury bills took place when the yield rose by 45 basis points for 91-day, 18 basis points for 182-day and 11 basis points for 364-day from its previous week's auction (October 14).
Treasury head of a second-generation private commercial bank, who also preferred not be quoted by name, said the government seems to hold the rising trend in yield on the treasury bills by not allowing bids over the cut-off yield.
Normally, he notes, the yields on state securities rise following policy-rate hike but it did not happen this time around.
"They (the government) might think if the yield goes up further, it will divert the bank depositors to the risk-free government investment instruments," the treasury executive says.
"That's probably the reason behind taking lesser funds than that is initially projected."
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