A moderate demand for the local currency is likely to be created in the money market this week ahead of the Eid-ul-Azha despite continuation of lower inter-bank call money rates, market operators said.
The call rate ranged between 1.80 per cent and 4.50 per cent on Wednesday against the previous range between 1.75 per cent and 4.50 per cent on Sunday last.
However, most of the deals were settled at rates varying between 3.50 per cent and 4.25 per cent, they added.
The weighted average rate (WAR) on call money remained almost stable ranging between maximum 3.80 per cent and 3.82 per cent from August 21 to August 23 last.
Interestingly, the call money rate is lower than both Reverse Repo rate and 91-Day Treasury Bills (T-bills).
The volume of transaction, witnessing an upward trend in the recent days, indicates active participation of banks and non-banking financial institutions (NBFIs) in the call money market.
The volume of overall transactions in the market reached Tk 85.72 billion on August 21 last while the rate was unchanged. It was Tk 77.65 billion on August 23.
However, most of the commercial banks have already taken preparations holding adequate liquidity to avoid any possible pressure on the money market ahead of the Eid while the overall excess liquidity is still at satisfactory level, according to the operators.
The overall excess liquidity with the country's commercial banks increased slightly, as of June 2017, for a lending downturn due to the national budget for the fiscal year (FY) 2017-18.
The volume of excess liquidity rose to Tk 1.06 trillion in the last week of June from below Tk 1.0 trillion in May, according to the central bank officials. It was Tk 1.23 trillion in the last week of December 2016.
However, excess reserves, generally known as excess over daily minimum cash reserve requirement (CRR) with the central bank, rose to around Tk 45 billion during the period under review from Tk 42 billion.
Most of the excess liquidity has already been invested in the government-approved securities and Bangladesh Bank (BB) bills as a risk-free investment for the banks.
"The upward trend in excess liquidity may continue by the end of August following suspension of the government's borrowing from the banking system," a BB senior official told the FE Saturday.
The government has made a pause in fresh borrowing from the banking system through cancelling auctions of its securities since July 23 to ensure proper cash management. The suspension will continue till August 31.
The government had taken the move against the backdrop of holding around Tk 40 billion in excess liquidity in its coffer.
But the excess liquidity has already been used to meet the growing demand for the government's expenditures.
"There is no excess liquidity right now in the government account," a senior official familiar with the government's debt management told the FE without elaborating.
The call money rate is likely to rise slightly ahead of the Eid due to higher withdrawal of liquid money from the banks, a senior treasury official of a leading private commercial bank (PCB) hinted.
He also said such short-term borrowings normally increase before Eid to meet the growing demand for money from the banks.
When contacted, a BB senior official, said: "The money market has enough capacity to face any pressure before the Eid."
He also said the central bank is monitoring the overall money market situation closely to ensure stability of the market before the Eid.
However, the pressure on money withdrawal from the banks may ease slightly this year before the Eid festival as use of both credit and debit cards, also known as plastic money, are increasing gradually in Bangladesh.
The banks are now facing lower demand for cash out of their vaults ahead of festivals like Eid-ul-Azha and Eid-ul-Fitr as a significant number of people are now connected with mobile financial services, agent banking and e-banking. These have reduced the tendency of holding cash money in their wallets, according to the market insiders.
Currently, 9.0 million debit cards are being used across the country while the number of credit cards stood at around 1.0 million.
siddique.islam@gmail.com
