Call money rate rises slightly on Eid pressure

The call money rate crept up to 4 percent this week, after hovering between 2 percent and 3 percent for two years, on the back of a cash withdrawal pressure in the lead-up to Eid-ul-Fitr.

“Still, it is less than the cost of funds for banks,” said Abul Kashem Md Shirin, managing director of Dutch-Bangla Bank.

The call money rate is the rate at which short-term funds are borrowed and lent in the money market by banks.

Banks take deposits at 5 percent interest, so they are still making losses in the call money market, he said.

The call money market has remained subdued for long due to excess liquidity in the system. “As a result, there is no cash crisis in the market despite the surge in cash withdrawal ahead of Eid,” Shirin added.

This week, the per day transaction volume in the call money market stood at Tk 9,000 crore, up 50 percent from last week's, according to data from the central bank.

Even a few years ago, Bangladesh Bank had to inject money into the system ahead of Eid, said a high official of the central bank. “But the situation is different now.”

Instead of injecting money, the central bank has to mop up excess liquidity -- ahead of the biggest festival in the country. The central bank is now mopping up Tk 3,000 crore to Tk 5,000 crore every day from the market through bills ahead of Eid.

Though private sector credit grew 16.2 percent in April this year, it did not help banks bring down their excess liquidity.

Banks are relying on treasury bills, which yield less than 3 percent in interest, to make gainful use of their money.

The record sales of savings tools have made the government reluctant to borrow from the banking sector, resulting in the excess liquidity in the market.

The net sales of different savings instruments in the first ten months of fiscal 2016-17 stood at Tk 42,000 crore against the government's target of Tk 19,610 crore for the whole year.

Accordingly, the government raised its borrowing target from savings tools to more than Tk 45,000 crore in the revised budget.