BB move to cheer up stocks as well

The central bank's move to extend the deadline for lowering the banks' loan-deposit ratio will give a boost to the stock market, stakeholders said.

"The decision will give a psychological relief to stockmarket investors," said Khairul Bashar Abu Taher Mohammed, secretary general of Bangladesh Merchant Bankers Association.

The development will stop the aggressive fund collection by banks at higher interest rates and subsequently bump up the daily turnover of the stock market, said Mostaq Ahmed Sadeque, president of the Dhaka Stock Exchange Brokers Association.

The Bangladesh Bank on Tuesday extended the deadline for banks to lower their loan-deposit ratio by 1.5-2 percentage points to December 31 from June 30.

"Banks will get almost one year to adjust the ratio, so the interest rate should not go up any further."

If the interest rate on deposits remains at single digit, the stock market will not face any fund withdrawal pressure, he said.

The central bank on January 30 had ordered conventional banks to lower their loan-deposit ratio to within 83.50 percent by June 30 from their existing ceiling of 85 percent and Shariah banks to 89 percent from 90 percent.

Dhaka stocks had reacted negatively to the decision, knocking off 88 points from the price index on January 31. Since then the index has been sticky downwards.

The daily turnover came down between Tk 300 crore and Tk 400 crore as investors were reluctant to inject fresh funds into stocks.

In this perspective, the DBA and the BMBA jointly sent a letter to the central bank with request to suspend the decision temporarily for the best interest of the stock market.

The time extension will ease the liquidity crisis by bringing down the interest rate on deposits, said Md Arfan Ali, managing director of Bank Asia.