Steep repo rate rises have fired up liquidity demand on the interbank money market, the central bank says in its annual report on government securities-now turning hotcakes.
The weighted-average interbank repo rate had increased by 405 basis points from FY 2021-22 to FY 2022-23, indicating such demand for liquidity, it says.
The interbank repo transactions in the past fiscal year also increased significantly.
The total amount of overall interbank repo transactions in FY 2022-23 was Tk 9.3 trillion, up by nearly 47 per cent over previous fiscal year's tally.
The interbank repo rate is determined by the financial sector's demand and supply of funds. This is simply depends on demand and supply.
An active interbank repo market plays significant role in the liquidity management of the financial system.
Such picture of the interbank repo was found in the central bank's annual report on securities released Tuesday. The flagship publication says the weighted-average repo rate showed an increasing trend in the first half of FY 2022-23, indicating growing demand for the repo for less liquidity on the market.
However, the trend reversed in the second half, signifying some relief in lower-liquidity scenario of the market.
A central banker says the interbank repo rate increased as there was liquidity demand on the market in fiscal year 2023.
"As the policy rate ---repo rate ---again has increased by 25 basis points for the next six months, the liquidity will be further tighter," he predicts about the cash thirst of banks.
Such central bank repo rate, not interbank repo, also impacts the interbank repo rates adversely.
The central bank raised the policy rate to contain inflation which remained up for long, especially since the beginning of the war in Ukraine.
In the meantime, the total outstanding government borrowing from the banking sector at the end of FY 2022-23 was 5.07 trillion (Tk 1.23 from T-bill, Tk 3.66 trillion from T-bond and Tk 180 billion from Sukuk), constituting 11.44 per cent of GDP, compared to 10.24 per cent at the end of June 2022.
The annual publication mentions foreign investors began to acquire T-bonds in April 2013, and the number had gradually climbed until December 2014. Following that, it rapidly climbed down as existing T-bonds matured and there had been no new foreign investments.
As of December 2018, foreign investors had made a net investment of Tk 230 million and between June 2019 and June 2022 there had been no foreign investment.
However, the non-resident investments stood at Tk 30 million at the end of June 2023.
jasimharoon@yahoo.com
