Cash transactions on the moribund call money-market see a slow pickup following the central bank's liquidity-squeezing moves to tame obdurate inflation, a prime concern of consumers and the interim government alike.
Call-money market is a key platform where borrowing and lending take place among banks. Even in a few months ago, the daily call-money transactions were hovering in-between Tk 100 billion and 140 billion.
After the fall of the Sheikh Hasina regime, poor fundamentals of several commercial banks came into media spotlight that, in fact, caused trust deficit to many of the banks. And this syndrome prompted affluent banks to shy away from getting engaged in call-money dealings and start cutting counterpart limits.
As a matter of fact, the banks having surplus funds were seen switching their surplus credits in large volumes into state-secured SDF or standing deposit facility despite their lower gains.
A course reversal comes from the central bank's tightfisted stance on money supply as a measure of inflation combat. As the Bangladesh Bank (BB), as part of its contractionary monetary stance, squeezed repo facility to once a week from two days and raised the policy rate by 50 basis points to 10 per cent, daily transacted volume on the call-money market started getting a slow upswing in recent days while the inflow of funds into the SDF keeps ebbing down.
According to the statistics available with the central bank, some Tk 242 billion was transacted among the banks on the call-money or spot market in the first nine official days of this month with a daily average of Tk 27 billion.
But in the subsequent nine days to October 24, some Tk 321 billion was transacted within the banking circles and the day average surged over Tk 36 billion, the data showed.
The major change was observed in the SDF where well-off banks, on average, daily deposited around Tk 40 billion in the first nine working days but the average volume dropped to Tk 8.0 billion in last nine days until October 24.
Seeking anonymity, a BB official said rate in the SDF is quite low (8.0 per cent) while the rate of call money as high as 10 per cent, which could be a reason for the reverse swing.
Simultaneously, the official said, the central bank curtailed the repo facility to once a week instead of existing two days that will be implemented from next month while the policy rate was enhanced by 50 basis points to 10 per cent very recently.
"These are the indications that the banks will have to manage funds themselves through efficient fund management. And all the steps are taken to make the call-money market vibrate," the BB official said.
The central banker also informed that the BB governor made a clear statement that the central bank will not inject high-powered money into the money market anymore.
"So, the call-money market is the major option through which banks can borrow funds from the interbank source."
Banks usually choose emergency loans from the call-money market to fill their asset-liability mismatch, comply with the statutory CRR and SLR requirements and to meet any exigent demand for funds.
Treasury head and executive vice president of Dhaka Bank Mahbubur Rahman says banks usually borrow from call-money market and the central bank through the repo facility.
Earlier, he notes, getting funds through the repo window was available all the office days. Since July this year, it has been curtailed to two days. Now it is further limited to once a week that will be implemented from next month.
"So, call-money market is the only option apart from the costly SLF (standing liquidity facility). That's why the dependence on the spot market started rising," he says.
Managing Director and Chief Executive Officer of Mutual Trust Bank (MTB) Syed Mahbubur Rahman says the affluent banks, under BB's liquidity-guarantee facility, have given cash support to the liquidity crisis-ridden banks in recent days, which is helping raise transactions on the call-money market to some extent.
According to the BB, six commercial banks - Sonali Bank, City Bank, Mutual Trust Bank, Dutch-Bangla Bank, Eastern Bank and Bengal Commercial Bank-under the guarantee-backed liquidity-support scheme had given Tk 40.65 billion to the six liquidity-strapped banks until October 16, 2024.
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