Rush for cash, but call money market calm

The call money market, which usually gets volatile during the Eid festivals due to cash withdrawal pressure, has remained calm this year, indicating lenders have adequate liquidity.

Yesterday's highest inter-bank call money rate was 4 percent. The rate was slightly higher at 4.5 percent for non-bank financial institutions, which are generally borrowers in the money market.

"There was no impact on the overnight money market as banks have very high liquid funds," said Shafiqul Alam, managing director of Jamuna Bank, which was a lender in the market.

Most of the deals were settled at 3-3.5 percent on the last day of banking before Eid-ul-Azha vacation, according to treasury officials of different banks. Few deals were settled at 4 percent.

Bankers said cash withdrawals more than doubled yesterday compared to usual days.

Yet, there was no pressure on the call money rate, which is the rate at which a bank or a non-bank financial institution gives short-term loans to other banks and NBFIs.

Banks also borrow money from the central bank ahead of Eid to meet their clients' cash withdrawal demand, but it was not required this time.

Treasury officials said the demand and supply of liquidity affect the call money rate: a tight liquidity condition leads to an increase in the call money rate, while excess funds push the rate down.

"The call money market was very much normal. We have seen no volatility and rate hike," said Mofizuddin Sarker, managing director of BD Finance, a non-bank financial institution.

The NBFIs borrowed money from the market at 4-4.5 percent yesterday, according to Sarker.

The weighted average call money rate started falling in 2012, when it was 12.82 percent. The average rate fell to 7.78 percent in 2013, 7.14 percent in 2014 and 5.38 percent in 2015, according to data from Bangladesh Bank.

In August this year, the weighted average rate stood at 3.71 percent -- the lowest since 1997.