BB decides not to mop up funds
Bangladesh Bank yesterday decided not to mop up any money from the market as a part of its efforts to ease the ongoing liquidity crunch in the banking sector.
"No auction will be held for the Bangladesh Bank Bill, an instrument that is used to withdraw money from the market, this month. The ongoing liquidity crunch has compelled the central bank to take the decision," said a BB official.
Bankers welcomed the central bank decision, terming it time befitting, saying it will help loosen the ongoing liquidity pressure in the banking sector.
The BB decided to mop up excess liquidity on August 5 as the demand for loans nosedived during the period.
Between August and November, the central bank mopped up Tk 68,971 crore through the BB bills.
There are three categories of the bill based on their maturity: 7-day, 14-day and 30-day.
Private sector credit growth has maintained an upward trend in recent months as businesses are now exploring loans from banks to expand their enterprises, creating the cash shortage in banks.
Although excess liquidity in the banking sector is still higher than the pre-pandemic level, the majority of the surplus fund is concentrated among a few banks.
The surplus fund totalled Tk 220,880 crore in October, up 0.6 per cent from that the month before.
Of the total excess fund, Tk 168,508 crore is concentrated among only a dozen banks, accounting for 76 per cent of the additional liquidity.
The fund concentration has created a liquidity stress in the sector as most lenders are struggling to meet a sudden spike in demand for credits just after the reopening of the economy from the coronavirus pandemic.
The liquidity shortage has forced the cash-poor banks to desperately turn to the inter-bank call money market, sending the interest rate on the overnight borrowing to an elevated level.
The call money rate stood at 4.49 per cent on November 18, up from 2.25 per cent on October 31.
The central bank did not mop up any money from a scheduled auction for the BB bill held last week. The central bank yesterday took a decision to discard the auction.
Syed Mahbubur Rahman, managing director of Mutual Trust Bank, said discontinuing the auction for the BB Bill was a good decision as liquidity situation in banks was getting stressful.
"Interest rate on deposits has already started to increase. Many banks will try to make their balance sheet shine this month considering it to be the last moment of this year," he said.
This will further create stress on lenders, but the central bank's initiative will help to ease the situation, Rahman said.
Emranul Huq, managing director of Dhaka Bank, also echoed him.
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