Call rate hits 62pc on BB's liquidity cut
Wednesday, 15 December 2010
Siddique Islam
The inter-bank call money rate hit a record 62 per cent Tuesday as central bank cut back on liquidity support intended to keep inflationary pressure from building up.
The call rate hovered from 35 per cent and 62 per cent on the day against 8.0 to 50 per cent a day earlier. However, most of the deals were settled at rates ranging from 45 per cent to 50 per cent, treasury officials said.
Inflation as measured by consumers' price index (CPI) increased by 0.25 percentage points to 8.12 per cent in September, up from 7.87 per cent in August. Food prices volatility is seen as the major reason behind the rising inflationary pressure.
"The call money rate has increased significantly on the day after tightening liquidity support through repurchase agreement (Repo) auction by the central bank recently," a senior treasury official of a private bank told the FE.
The Bangladesh Bank (BB) received Tuesday 20 bids of one- day tenor amounting to Tk 62.5790 billion. But the central bank provided Tk 11.4732 billion against the bids, according to the central bank auction results.
A severe liquidity shortfall also struck the market as banks had to comply with cash reserve requirement (CRR) of the central bank to meet the Tuesday deadline, the official said.
Under the existing CRR rules, the banks are to maintain the reserve at 5.00 per cent on daily basis, but the bi-weekly average has to be 5.50 per cent in the end.
"The rising demand for liquidity will continue until December 15 for the implementation of new CRR by the banks," another treasury official of a commercial bank said, adding that higher import growth also decreased liquidity in the market.
On December 1 last, the central bank raised CRR by five basis points to 6.0 per cent for the commercial banks to help curb inflationary pressure on the economy.
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.
"Higher call money rate may push the interest rates on deposits in the near future to meet the growing demand for liquidity," a treasury official said, adding that the real rate of return on deposits in the country is still low and, to some extent, negative because of high inflation rate.
"As a result, the banks are raising the interest rates to attract more deposits from their clients," he noted.
The central bank provides liquidity support in line with the current monetary policy that has been announced to achieve inclusive economic growth through strengthening financial position while keeping inflationary pressure under control.
"We've provided liquidity support through Repo auction to the banks and financial institutions, considering the country's overall economic situation," a BB senior official told the FE.
The central bank's move reflects the growing recognition to the rising trend in inflation and broad money supply in the market, he added.
The inter-bank call money rate hit a record 62 per cent Tuesday as central bank cut back on liquidity support intended to keep inflationary pressure from building up.
The call rate hovered from 35 per cent and 62 per cent on the day against 8.0 to 50 per cent a day earlier. However, most of the deals were settled at rates ranging from 45 per cent to 50 per cent, treasury officials said.
Inflation as measured by consumers' price index (CPI) increased by 0.25 percentage points to 8.12 per cent in September, up from 7.87 per cent in August. Food prices volatility is seen as the major reason behind the rising inflationary pressure.
"The call money rate has increased significantly on the day after tightening liquidity support through repurchase agreement (Repo) auction by the central bank recently," a senior treasury official of a private bank told the FE.
The Bangladesh Bank (BB) received Tuesday 20 bids of one- day tenor amounting to Tk 62.5790 billion. But the central bank provided Tk 11.4732 billion against the bids, according to the central bank auction results.
A severe liquidity shortfall also struck the market as banks had to comply with cash reserve requirement (CRR) of the central bank to meet the Tuesday deadline, the official said.
Under the existing CRR rules, the banks are to maintain the reserve at 5.00 per cent on daily basis, but the bi-weekly average has to be 5.50 per cent in the end.
"The rising demand for liquidity will continue until December 15 for the implementation of new CRR by the banks," another treasury official of a commercial bank said, adding that higher import growth also decreased liquidity in the market.
On December 1 last, the central bank raised CRR by five basis points to 6.0 per cent for the commercial banks to help curb inflationary pressure on the economy.
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.
"Higher call money rate may push the interest rates on deposits in the near future to meet the growing demand for liquidity," a treasury official said, adding that the real rate of return on deposits in the country is still low and, to some extent, negative because of high inflation rate.
"As a result, the banks are raising the interest rates to attract more deposits from their clients," he noted.
The central bank provides liquidity support in line with the current monetary policy that has been announced to achieve inclusive economic growth through strengthening financial position while keeping inflationary pressure under control.
"We've provided liquidity support through Repo auction to the banks and financial institutions, considering the country's overall economic situation," a BB senior official told the FE.
The central bank's move reflects the growing recognition to the rising trend in inflation and broad money supply in the market, he added.