BB plans forming CMC for banks’ liquidity demand

PD banks seek six-month auction calendar

Siddique Islam | Thursday, 25 April 2019

The Bangladesh Bank (BB) is planning to set up a Cash Management Cell (CMC) under its Debt Management Department (DMD) to meet instant liquidity requirement of banks, officials said.
The issue was discussed at a review meeting with the primary dealer (PD) banks, held at the central bank headquarters in Dhaka on Wednesday, with Md. Khurshid Alam, General Manager of the BB, in the chair.
At the meeting, the senior officials of the PD banks proposed the central bank to take such a measure, as the BB is the last resort to facilitate proper liquidity management in the country's banking system.
According to the proposal, at the closure of businesses, the central bank may arrange Repo and Reserve Repo auctions to help the bank concerned comply with the BB's cash reserve requirement (CRR) rules.
"Instant funds will be available to all the banks, if the central bank sets up such a cell," a senior executive of a leading PD bank told the FE.
Normally, the banks do not lend their excess funds to others without having counterparty limits that are set by an entity in order to manage and control risks.
"Excess funds with both the commercial banks as well as the government may be used through the cell," the private banker explained.
When contacted, a BB senior official said the central bank is considering the proposal positively.
"We'll finalise our decision after examining different aspects of forming the proposed cell," he noted.
The PD banks also proposed the central bank to revise the cut-off time for submitting bids for Repo, Reverse Repo, Special Liquidity Support and Special Repo auctions at 5:15 pm on each working day instead of the existing time at 12:15 pm.
"It is needed to manage liquidity supply smoothly in the country's banking system," another PD bank official told the FE.
The PD banks also sought introduction of an auction calendar of six-month tenure instead of the existing single-month one to manage funds efficiently.
"We need an auction calendar of six-month tenure for managing funds properly," the official added. He also said the PD banks also sought standing liquidity support along with the existing assured liquidity support to ensure their required liquidity supply.
At the meeting, different issues related to the development of bond market, call money rates, and interest rates on the government securities were also discussed.
On the other hand, the central bank sought individual opinions from the PD banks within the next 10 working days on developing the country's nascent bond market.
Currently, a tripartite committee is working to boost the bond market, particularly the corporate one.
"The PD banks' opinions will be given emphasis in formulating our policy recommendations to develop the bond market," a committee member told the FE.
The central bank earlier selected 21 PDs to manage the government-approved securities in the secondary market.

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