Injection of newly printed 'high-powered money' by Bangladesh Bank into the market swelled over 175 per cent in the past financial year, BB sources said, stoking inflation further.
Officials at the BB said the central bank had funneled a record volume of the print money into government account in the last one year through buying majority of the government securities itself with 'devolvement mechanism' to ease banks' liquidity stress.
But economists strike a bit different note that bears a fear of higher inflationary pressure on the already-overheated market that could make a strong bite on people's wallet.
They say it could give some sort of respite to the banks in the current context for a while, but it could further enhance the risk of inflation as the central bank buys these securities with the funds equivalent to newly circulated money.
According to statistics available with the central bank, the net volume of devolvement carried out by the BB stood at around Tk 800 billion in the FY'23, in a quantum leap by Tk 510 billion from the previous fiscal year's Tk 290 billion.
Preferring anonymity, a BB official says the government normally borrows money from the banking system to meet budget-financing shortfalls through auctioning government securities - treasury bills and treasury bonds hosted by the central bank.
"Usually, the primary dealers (PD) would take part in the auction and invest in the risk-free instruments, but the situation now got quite different as there is liquidity tightness persisting in the banking system," he adds.
The central banker informed that they sold US$13.58 billion in FY'23 to the banks to help them in overseas transactions amid forex dearth. It means the banks spent over Tk 1.3 trillion to buy the greenback, and it builds up pressure on their liquidity.
"If we did not go for devolvement, the money would come from the market and it would mount the liquidity stress further that we don't want," the BB official says to explain how overheating of the money market was averted.
Another BB official, who also wanted not to be quoted by name, said the investors or PDs asked for higher yields amidst the BB move for relaxing interest rates.
"If we allowed higher rate for the security instruments in the auction, it would have a negative impact on the benchmark reference rate through which the banks' lending rates will be fixed."
The official said they calculated many factors like liquidity situation of the participating dealers, interest rate, cost of fund, call-money rate and so before going for devolvement "on our own".
"I think, the devolvement mechanism basically helps ease liquidity pressure on the banks."
From economists' point of view, such high-powered money stands out as a double bind for financial management in the given situation-an overdose stokes inflation and a scaling down creates liquidity crunch.
Executive Director of Policy Research Institute (PRI) Dr Ahsan H. Mansur thinks the government borrowing from the banking system keeps increasing because of revenue shortfalls against its spending recipe.
"I accept the central bank claim of helping ease liquidity stress of the government but what will happen in this fiscal as there is no sign that banks' liquidity and government revenue earning will go up remarkably," he says.
"It means it is the beginning of a new trend..I would say a bad trend."
The economist forewarns that it would possibly mount inflationary pressure in the days to come.
Contacted for his view, former lead economist at the World Bank's Dhaka office Dr Zahid Hussain said the government borrowed high-powered money or print money from the central bank and kept spending into the market that started working into the economy. It raises either productivity or price of products.
The former World Bank economist finds current macroeconomic context of the economy not suitable for production because of many factors--like forex dearth, drastic fall in import orders and the like.
"So, it would possibly contribute to a raise in inflation further, which is a matter of serious concern," he says.
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