Sharp drop in call money rate

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Siddique Islam
The inter-bank call money rate dropped sharply to 1.75 per cent Tuesday due to sluggish demand for fund in a highly liquid market.
Market operators said non acceptance of reverse repurchase agreement (repo) by the central bank since March 25 last also contributed to the decline in call rate.
The call rate mainly ranged between 1.75 per cent and 10 per cent on the day against Monday's range between 3.0 per cent and 11.0 per cent. But most of the deals were made at rates between 2.0 per cent and 3.0 per cent on the day, treasury officials said.
"Market is now having more liquidity because of falling trend of import payments and export performances," a chief executive of a private commercial bank added.
"We're using our monetary tools like reverse repo auction in line with the existing monetary policy," an executive official of the Bangladesh Bank (BB) told the FE.
Market operators said the central withdrew Tk 2.5 billion through auction of treasury bills on Sunday. But in the past week the central bank injected Tk 5.0 billion into the market by holding the auction of repo against withdrawal of Tk 4.0 billion.
In the previous week from March 14 to March 19, the BB withdrew Tk 20.38 billion against injection of Tk 29.50 billion.
On January 14 last, the central bank unveiled its second half-yearly monetary policy aiming to achieve optimum economic growth in the current fiscal while keeping inflationary pressures under control.
Under the existing monetary policy, credit flow to the productive sectors like agriculture and small and medium enterprises (SMEs) will be encouraged while less productive sectors like consumer loans will be discouraged during January-June period of fiscal 2008-09.
Besides, the central bank slashed the interest rate on reverse repo to 6.50 per cent from 6.75 per cent on March 1l last to offset the ongoing global financial recession and boost fresh investment.
"Call rate recorded a declining trend Wednesday last after the central bank refrained from accepting reverse repo," a senior treasure official of a private commercial bank told the FE.
He also said the declining trend continued until Tuesday, which may aggravate further if the central bank does not accept reverse repo from the commercial banks and financial institutions.
"The BB should accept repo and reverse repo to keep the country's money market stable," another treasure official of a foreign commercial bank told the FE, adding that more banks may cut interest rate on deposits in the upcoming months to minimise their costs of fund.
In March 2009, at least eight commercial banks decreased interest rates on deposit in the current month, while interest rates on lending remained almost the same in the country's banking sector
The commercial banks have started slashing their interest rates on deposit in March in line with the central bank's latest interest rate policy.
"At least five more commercial banks have already cut their interest rate on deposits, which comes into effect in April," a senior banker said, adding that more banks plan to reduce their interest rate on deposits in line with the BB's latest move.