Bangladesh Bank's (BB) injection of high-powered money into the economy through devolvement of the government securities has been declining slowly in recent months, giving some respite amid the present high-inflation scenario.
Bankers have pointed out a number of factors, like improvement in the commercial banks' liquidity situation as well as cautious lending by the banks in the election year, behind growing participation of the primary dealer (PD) banks in the auctions to purchase risk-free instruments - treasury bills and treasury bonds.
According to the BB statistics, the government borrowed Tk 344.68 billion from the banking system in April 2023 through the government securities. The BB met as high as 47 per cent (Tk 160 billion) of the government's funding requirements from its own accounts, which is basically the print money.
The BB's share of loans given to the government to meet its revenue shortfalls declined to 26 per cent (Tk 75.05 billion of Tk 293.97 billion) in May. But it rose again to 41 per cent (Tk 113.71 billion of Tk 275.04 billion) in June.
In July, the government borrowed Tk 382.54 billion from the banking system, but the central bank's contribution was 36 per cent or Tk 137.19 billion.
In the first seven days of the current month, the government's domestic borrowing from the banking sector stood at Tk 97.47 billion, when the amount lent to the government through devolvement mechanism was 12 per cent (Tk 11.75 billion).
Seeking anonymity, a BB official said the central bank has been supporting the government - largely to meet its budgetary deficits in a bid to lessen liquidity pressure on the commercial banks - since third quarter of the previous calendar year.
"But the BB's devolvement practice is dropping slowly in very recent times, as participation of the PD banks in the auctions keeps growing."
The official said the banks' liquidity situation is improving. So, riding on the rising credits, the PDs are now offering comparatively lower and 'more logical' rate in the auctions, which are accepted in bidding.
Call money rate is one of the major indicators to understand the liquidity situation. The interbank call money rate usually falls, if the liquidity situation improves.
According to the BB data, the call money rate went over 7.0 per cent a couple of months ago because of growing credit demand by the banks from interbank sources. Now, the rate continues to drop to reach 6.28 per cent as on August 09.
Seeking anonymity, chief executive officer (CEO) and managing director of a private commercial bank said the private sector's credit demand plummeted significantly in the recent times due to various factors like import restriction, rising import cost, volatility in global and domestic macro-economic fronts, looming election-related instability, etc.
"The banks are also very cautious in lending in the election year. So, investing in the risk-free government securities is a good option for them. This is probably a reason," he added.
Contacted, Md. Sadiqur Rahman, deputy managing director (DMD) and head of treasury of Meghna Bank Limited, said the PDs are becoming more encouraged to invest in short-term instruments like 91-day treasury bills.
"Data analysis will show that majority of the investment is going to the short-term T-bills, which is more profitable for the banks."
He said the rate in the three-month T-bills is 7.40 per cent. The PDs are guaranteed to get 85 per cent of the fund against 91-day T-bills in the form of assured liquidity support (ALS) at the REPO rate of 6.50 per cent.
"For example, if any PD invests Tk 10 billion in short-term T-bills at 7.40 per cent rate, it can immediately get maximum Tk 8.50 billion from the BB through ALS instrument at 6.50 per cent repo rate. It means, there is a benefit of 90 basis points of rate," he added.
Seeking anonymity, chief financial officer (CFO) of a bank said there might be some unofficial directives from the BB to some PDs to participate in the auctions at the BB's prescribed rate, as there are many banks whose liquidity situation has not improved much.
jubairfe1980@gmail.com
