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Call money rate surges to 7pc amid liquidity shortage

Published : Friday, 27 January, 2023 at 12:00 AM  Count : 424

The inter-bank call money rate soared to 7 per cent on Thursday as banks are facing liquidity shortage. The weighted average rate on call money rose to 7 per cent on Thursday from 5.80 per cent in December 2022 while it was at 4.88 in June, according to Bangladesh Bank (BB) data.
The call money rate has started rising sharply since March 21, 2022 when it was at 2.05 per cent, according to BB data. The call money rate is the interest rate on a short-term or overnight loan from one bank to another to meet an urgent requirement.
Banks usually choose the emergency loans to fill the asset liability mismatch, comply with statutory liquidity requirement (SLR) and cash reserve requirement (CRR) requirements and to meet any sudden demand for funds.

Loan irregularities in some banks and rumors about bleak situation in banks have created distrust among depositors and instigated them to withdraw funds significantly that worsened liquidity situation in some banks, bankers said.
They said the government's increased borrowing from banking system, BB's dollar sales to banks to settle import bills and a rise in treasury bill rates were creating stress on liquidity in banking sector. The rise in inflation also created credit demand, they said.
The amount of excess liquidity in banking sector plunged by Tk 57,707 crore to Tk 1,45,728 crore at the end of December 2022 from that of Tk 2,03,435 crore in June 2022.
Bangladesh Bank on September 29 raised its key policy rate or repurchase agreement rate by 25 basis points to 5.75 per cent in a bid to tackle inflationary pressure and revive stability in foreign exchange market.
After business recovery from Covid-centric dismal situation, demand for liquidity had risen significantly and the money market started feeling the pressure as it could not match with sudden high demand. The private sector credit growth increased to 14.07 per cent in August.
BB injected more than $7.8 billion in the financial system from July to December in 2022 in order to stabilise the foreign currency market and facilitate banks in making import payments obligations.
The dollar sales, in turn, mopped up equivalent local currency from the banking system. Due to dollar sales, foreign exchange reserves dropped to $32.47 billion on January 18 from record $48.6 billion in August 2021.
The exchange rate rose sharply to Tk 108 from Tk 84.8 against US dollar within a year. BB approved floating rate of dollars on September 14.















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