The call-money rate drops below the floor of corridor to 8.46 per cent as cash feeding into the commercial banks by the Bangladesh Bank dampens demand for interbank borrowings.
Borrowing by banks in need through interbank sources normally goes up during Ramadan and ahead of Eids because of growing demand for formal credits. And such occasional borrowing basically pushes up call- money rate. But things look completely different this time around, with the call-money rate staying on a downturn for the last one month.
Finance officials and bankers have said the liquidity injections by the country's central bank in various forms, suchlike issuance of special bond and currency-swap continues, have risen in recent weeks after last January's volatility in call-money rate.
As a matter of fact, the demand for interbank debts is declining as the liquidity situation of the commercial banks is getting better riding on the increased fund injections.
Sources at the BB said the call-money rate now stood at 8.46 per cent on March 13, 2024. The rate went past the upper ceiling at 9.50 per cent of the interest-rate corridor (IRC) on January 28, 2024 to hit 9.60 per cent.
The average interest rates charged on overnight loan by one bank to another were 9.27 per cent, 9.20 per cent, 9.02 per cent, 8.81 per cent, 8.48 per cent, 8.55 per cent, 8.85 per cent, 8.53 per cent and 8.46 per cent on March 3, March 4, March 5, March 6, March 7, March 10, March 11, March 12 and March 13 respectively.
Seeking anonymity, a BB official has said commercial banks have been getting huge funds from the central bank through using currency-swap mechanism and special bond meant for settling accumulated arrears to independent power producers and fertiliser suppliers.
On the other hand, the BB keeps accepting all the liquidity-related appeals of the commercial banks considering existing liquidity pressure in the banks. As a result, the official said, the liquidity stress in the banking sector started easing riding on the liquidity supports.
According to the statistics of the BB, the commercial banks had received over Tk 140 billion from the BB through selling their overbought US dollars under the currency-swap window until March 12, 2024.
On the other hand, the banks also received AR supports worth around Tk 200 billion against the special bonds so far.
To bring vibrancy in the call-money deals, according to the BB official, the central bank has decided to allow liquidity support in repo once a week instead of daily operations from upcoming July.
"Now the call-money rate is literarily controlled. We want to make it market-driven by ensuring better liquidity management in banks," the BB official said.
A senior treasury official of a commercial bank, who preferred not to be quoted by name, says the demand for interbank borrowing generally goes up during Ramadan and ahead of Eid festivity.
But, the situation is completely opposite now as banks got around Tk 350 billion worth of funds from the BB in the last one and a half months from currency swap and special bonds.
"That's probably the main reason behind the lower demand for credits from interbank sources," says the treasury official, adding that the falling trend in call-money rate now becomes a matter of concern for the banks used to lending money through interbank dealings.
Apart from liquidity supports from the central bank, says managing director and chief executive officer of Dhaka Bank Emranul Huq, the credit demand from the banks is on the downturn for few other developments, too.
He mentions a significant fall in post-import financing and offshore financing in recent times as well as an increase in cash recovery of the loans.
"So, the demand for liquidity of the banks has dropped. But it would rise after the 15th of Ramadan."
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