BB raises CRR to contain inflation
Thursday, 2 December 2010
Siddique Islam
The central bank raised the cash reserve requirement (CRR) by five basis points to 6.0 per cent for the commercial banks Wednesday to curb inflationary pressure on the economy.
Under the new rules, the commercial banks will have to maintain 6.0 per cent CRR with the central bank from their total demand and time liabilities on a bi-weekly basis.
The new CRR will be effective from December 15 this year, a senior central bank official said, adding that the central bank issued a circular in this connection Wednesday.
"We've increased the CRR to curb inflationary pressure on the economy,"
General Manager of the Monetary Policy Department of Bangladesh Bank (BB) Begum Sultana Razia told the FE.
She also said the central bank has taken the latest move considering the country's overall economic situation.
The banks will be allowed to maintain the reserve at 5.50 per cent instead of the existing 5.0 per cent on daily basis, but the bi-weekly average has to be 6.0 per cent in the end, according to the new rules.
"We're hopeful about mopping up over Tk 15 billion excess liquidity from the money market by raising the CRR," another BB official said, adding the central bank has taken the latest move against the backdrop of the rising trend in inflation as well as broad money supply in the market.
The new CRR comes after a gap of more than six months. The central bank last increased the ratio by 0.5 percentage points to 5.50 per cent on May 5 this year.
The country's inflation as measured by consumers' price index (CPI) rose to 8.12 per cent in September 2010, up from 7.87 per cent of the previous month on the annual average basis, according to the Bangladesh Bureau of Statistics (BBS) data.
The rate of inflation went up by 0.25 per cent in the month of September, over that of the previous month, mainly because of increase in prices of food items.
Besides, the central bank has also increased the rate of statutory liquidity ratio (SLR) to 19 per cent from the existing 18.50 per cent, which will come into effect from December 15 this year, the central bank officials said.
The central bank expects that the inflationary pressures might ease in the coming months following the latest policy intervention, the BB officials added.
Former central bank economic adviser Habibullah Bahar termed the increase of CRR as justified, saying that it was needed to contain the ongoing upward trend of inflation.
"The impact of the measure may be examined further by the central bank to know the outcome of the monetary instrument," Mr. Bahar said, adding such a measure does not work properly in developing countries like Bangladesh mainly due to the lack of vibrant money market.
The country's businessmen think the BB's latest move may affect them more or less, saying that the borrowing from the banking system may be squeezed in the near future due to increase in the CRR.
"The credit flow to the private sector may decline slightly in the coming months following CRR increase," President of Dhaka Chamber of Commerce and Industry (DCCI) Abul Kasem Khan told the FE.
The central bank raised the cash reserve requirement (CRR) by five basis points to 6.0 per cent for the commercial banks Wednesday to curb inflationary pressure on the economy.
Under the new rules, the commercial banks will have to maintain 6.0 per cent CRR with the central bank from their total demand and time liabilities on a bi-weekly basis.
The new CRR will be effective from December 15 this year, a senior central bank official said, adding that the central bank issued a circular in this connection Wednesday.
"We've increased the CRR to curb inflationary pressure on the economy,"
General Manager of the Monetary Policy Department of Bangladesh Bank (BB) Begum Sultana Razia told the FE.
She also said the central bank has taken the latest move considering the country's overall economic situation.
The banks will be allowed to maintain the reserve at 5.50 per cent instead of the existing 5.0 per cent on daily basis, but the bi-weekly average has to be 6.0 per cent in the end, according to the new rules.
"We're hopeful about mopping up over Tk 15 billion excess liquidity from the money market by raising the CRR," another BB official said, adding the central bank has taken the latest move against the backdrop of the rising trend in inflation as well as broad money supply in the market.
The new CRR comes after a gap of more than six months. The central bank last increased the ratio by 0.5 percentage points to 5.50 per cent on May 5 this year.
The country's inflation as measured by consumers' price index (CPI) rose to 8.12 per cent in September 2010, up from 7.87 per cent of the previous month on the annual average basis, according to the Bangladesh Bureau of Statistics (BBS) data.
The rate of inflation went up by 0.25 per cent in the month of September, over that of the previous month, mainly because of increase in prices of food items.
Besides, the central bank has also increased the rate of statutory liquidity ratio (SLR) to 19 per cent from the existing 18.50 per cent, which will come into effect from December 15 this year, the central bank officials said.
The central bank expects that the inflationary pressures might ease in the coming months following the latest policy intervention, the BB officials added.
Former central bank economic adviser Habibullah Bahar termed the increase of CRR as justified, saying that it was needed to contain the ongoing upward trend of inflation.
"The impact of the measure may be examined further by the central bank to know the outcome of the monetary instrument," Mr. Bahar said, adding such a measure does not work properly in developing countries like Bangladesh mainly due to the lack of vibrant money market.
The country's businessmen think the BB's latest move may affect them more or less, saying that the borrowing from the banking system may be squeezed in the near future due to increase in the CRR.
"The credit flow to the private sector may decline slightly in the coming months following CRR increase," President of Dhaka Chamber of Commerce and Industry (DCCI) Abul Kasem Khan told the FE.