BB cuts interest rate on repo
Siddique Islam | Thursday, 12 March 2009
The Bangladesh Bank (BB) has slashed its interest rate on repurchase agreement (repo) after nearly seven months aiming to offset the ongoing global financial recession through boosting fresh investment, officials said.
The interest rate on repo auction was re-fixed at 8.50 per cent Wednesday from 8.75 per cent of the previous auction for lending fresh funds to commercial banks and non-banking financial institutions (NBFIs).
The BB's latest move indicates that the central bank is going back to its policy of expansionary monetary measures as it would encourage credit flow to the private sector, treasury officials of commercial banks observed.
A total of Tk 3.50 billion was injected on the day by the central bank through the repo auction to ease pressure on liquidity in the inter-bank money market, they added.
The central bank also cut the interest rate on reverse repo to 6.50 per cent from 6.75 per cent.
"We've cut the interest on repo auction in line with the global scenario on the expectation that it would help boost fresh investment in the country," a BB senior official told the FE.
"We've revised our interest rate policy considering the country's overall economic situation," the BB official said, adding that the central bank took the latest move against the backdrop of declining trend in inflationary pressures on the economy.
The country's Consumers Price Index (CPI) inflation eased marginally in January on an annual average basis because of declining prices of food and non-food items both in rural and urban areas.
The CPI inflation came down to 8.46 per cent in January on an annual average basis from 8.90 per cent of the previous month, according to the Bangladesh Bureau of Statistics (BBS) data.
On September 17 last, the BB increased interest rate on repo to 8.75 per cent from 8.50 per cent aiming to curb inflationary pressures on economy.
The market operators, however, said that the BB's latest measure would have influence in the interest rates on both lending and deposit in the banking system.
"The slashing of interest rate on repo may encourage credit flow to the private sector in the near future," a chief executive officer of a private commercial bank told the FE.
The credit flow to the private sector increased by 21.77 per cent to Tk 365.67 billion in December last on a year-on-year basis from 16.82 per cent or Tk 241.78 billion of the corresponding period of the previous year, according to the central bank statistics.
He also said the BB indicated that other interest rates relating to money and credit markets would reduce in the near future.
"It's a signal to the commercial banks that the central bank is going to shift its monetary policy stance to pro-growth expansionary from the existing cautious accommodative one," another senior treasury official of a commercial bank said.
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.
Meanwhile, the BB purchased US$12.50 million from the commercial banks Wednesday, when the greenback gained against local currencies.
The central bank bought the dollar at the market rate from five private commercial banks (PCBs), officials said.
The US dollar was quoted at Tk 68.97-Tk 68.99 in the inter-bank foreign exchange market on the day against Tk 68.96 -Tk 68.97 previously.
"We've purchased the US dollar from the PCBs to help the banks comply with the net open position (NOP) rules for holding foreign exchange," a BB senior official told the FE.
He also said the central bank continues its intervention in the inter-bank foreign exchange market through selling and buying of the US currency directly and providing overdraft (OD) facilities to the banks aiming to keep the market stable.
On Monday last, the BB similarly purchased $14 million from three commercial banks on the same ground, the central bank officials said.
The central bank of Bangladesh started the intervention in the market by buying the US currency directly from the commercial banks on January 15 last to keep the market steady.
Since then, the BB has bought $269.20 million from commercial banks as part of its intervention in the market, they confirmed.
The interest rate on repo auction was re-fixed at 8.50 per cent Wednesday from 8.75 per cent of the previous auction for lending fresh funds to commercial banks and non-banking financial institutions (NBFIs).
The BB's latest move indicates that the central bank is going back to its policy of expansionary monetary measures as it would encourage credit flow to the private sector, treasury officials of commercial banks observed.
A total of Tk 3.50 billion was injected on the day by the central bank through the repo auction to ease pressure on liquidity in the inter-bank money market, they added.
The central bank also cut the interest rate on reverse repo to 6.50 per cent from 6.75 per cent.
"We've cut the interest on repo auction in line with the global scenario on the expectation that it would help boost fresh investment in the country," a BB senior official told the FE.
"We've revised our interest rate policy considering the country's overall economic situation," the BB official said, adding that the central bank took the latest move against the backdrop of declining trend in inflationary pressures on the economy.
The country's Consumers Price Index (CPI) inflation eased marginally in January on an annual average basis because of declining prices of food and non-food items both in rural and urban areas.
The CPI inflation came down to 8.46 per cent in January on an annual average basis from 8.90 per cent of the previous month, according to the Bangladesh Bureau of Statistics (BBS) data.
On September 17 last, the BB increased interest rate on repo to 8.75 per cent from 8.50 per cent aiming to curb inflationary pressures on economy.
The market operators, however, said that the BB's latest measure would have influence in the interest rates on both lending and deposit in the banking system.
"The slashing of interest rate on repo may encourage credit flow to the private sector in the near future," a chief executive officer of a private commercial bank told the FE.
The credit flow to the private sector increased by 21.77 per cent to Tk 365.67 billion in December last on a year-on-year basis from 16.82 per cent or Tk 241.78 billion of the corresponding period of the previous year, according to the central bank statistics.
He also said the BB indicated that other interest rates relating to money and credit markets would reduce in the near future.
"It's a signal to the commercial banks that the central bank is going to shift its monetary policy stance to pro-growth expansionary from the existing cautious accommodative one," another senior treasury official of a commercial bank said.
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.
Meanwhile, the BB purchased US$12.50 million from the commercial banks Wednesday, when the greenback gained against local currencies.
The central bank bought the dollar at the market rate from five private commercial banks (PCBs), officials said.
The US dollar was quoted at Tk 68.97-Tk 68.99 in the inter-bank foreign exchange market on the day against Tk 68.96 -Tk 68.97 previously.
"We've purchased the US dollar from the PCBs to help the banks comply with the net open position (NOP) rules for holding foreign exchange," a BB senior official told the FE.
He also said the central bank continues its intervention in the inter-bank foreign exchange market through selling and buying of the US currency directly and providing overdraft (OD) facilities to the banks aiming to keep the market stable.
On Monday last, the BB similarly purchased $14 million from three commercial banks on the same ground, the central bank officials said.
The central bank of Bangladesh started the intervention in the market by buying the US currency directly from the commercial banks on January 15 last to keep the market steady.
Since then, the BB has bought $269.20 million from commercial banks as part of its intervention in the market, they confirmed.